FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
February 9, 2000 (December 17, 1999)
SECURE COMPUTING CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
0-27074 52-1637226
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(Commission File Number) (IRS Employer Identification No.)
One Almaden Blvd., Suite 400, San Jose, California 95113
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 918-6100
Item 5. OTHER EVENTS.
On December 17, 1999, the Company sold 5,000 shares of Series D 4%
Cumulative Convertible Preferred Stock (the "Series D Stock") to Westgate
International, L.P. ("Westgate") for $5 million in cash, and it sold an
additional 2,500 shares of Series D Stock to Westgate on December 31, 1999, for
$2.5 million in cash.
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All of the Series D Preferred Stock has been converted into a total of
793,205 shares of Common Stock.
On January 26, 2000, the Company entered into a Put and Call Agreement
with Westgate which provides for the sale of up to 17,500 shares of Series E 4%
Cumulative Convertible Preferred Stock (the "Series E Stock") to Westgate at
$1,000 per share. The Series E Sock may be sold in two tranches of approximately
8,750 shares each. A copy of the press release dated January 27, 2000 announcing
the investment is attached to this Current Report as Exhibit 99.1 and is
incorporated herein.
All sales of securities to Westgate will be pursuant to the exemption
provided by Regulation D under the Securities Act of 1933.
The Company is obligated to file with the Securities and Exchange
Commission a "shelf" registration statement covering the resale of all shares of
Common Stock issued upon conversion of the Series D Stock. The Company is also
obligated, after the sale of each tranche of Series E Stock, to file a shelf
registration statement covering the resale of all shares of Common Stock
issuable upon the conversion of the Series E Stock sold.
The foregoing description is only a summary and is qualified in its
entirety by reference to the Preferred Stock Investment Agreement dated as of
December 17, 1999 between the Company and Westgate, the Put and Call Agreement
dated as of January 26, 2000 between the Company and Westgate, the Registration
Rights Agreements dated as of December 17, 1999 and January 26, 2000 between the
Company and Westgate and the Certificates of Designations for the Series D Stock
and Series E Stock attached to this Current Report as Exhibits 10.1, 10.3, 10.2,
10.4, 3.1 and 3.2 respectively.
The proceeds from these equity investments will be used for working
capital purposes.
Item 7. EXHIBITS.
Exhibit No. Description
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3.1 Certificate of Designations of Series D Preferred Stock
3.2 Certificate of Designations of Series E Preferred Stock
10.1 Preferred Stock Investment Agreement dated as of December
17, 1999 between the Company and Westgate
10.2 Put and Call Agreement dated as of January 26, 2000
between the Company and Westgate
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10.3 Registration Rights Agreement dated as of December 17,
1999 between the Company and Westgate
10.4 Registration Rights Agreement dated as of January 26, 2000
between the Company and Westgate
99.1 Press Release dated January 26, 2000
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Current Report to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of San Jose, State of
California, on February 9, 2000.
SECURE COMPUTING CORPORATION
By: /s/ TIMOTHY MCGURRAN
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Timothy McGurran,
Senior Vice President and
Chief Financial Officer
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EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS OF THE POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS
OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
OF
SERIES D 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
FOR
SECURE COMPUTING CORPORATION
SECURE COMPUTING CORPORATION, a Delaware corporation (the
"Corporation"), pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, does hereby make this Certificate of
Designations and does hereby state and certify that pursuant to the authority
expressly vested in the Board of Directors of the Corporation by the Certificate
of Incorporation of the Corporation, the Board of Directors duly adopted the
following resolutions, which resolutions remain in full force and effect as of
the date hereof:
RESOLVED, that, pursuant to Article [Fourth] of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby authorizes the
issuance of, and fixes the designation and preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of 7,500
shares, par value $0.01, to be designated Series D "4% Cumulative Convertible
Preferred Stock" (the "Preferred Shares").
RESOLVED, that subject to the terms and conditions of the Investment
Agreement (as defined herein), 5,000 Preferred Shares may be issued in one
tranche (the "Initial Tranche") and further subject to the exercise of an option
under the terms of the Investment Agreement (as defined herein), an additional
2,500 Preferred Shares, in one or more tranches, may be issued (each tranche
being sometimes referred to as a "Tranche").
RESOLVED, that each of the Preferred Shares shall rank equally in
all respects and shall be subject to the following terms and provisions:
1. DESIGNATION. There is hereby created out of the authorized and unissued
shares of preferred stock of the Corporation a series of preferred stock
designated as the Series D "4% Cumulative Convertible Preferred Stock" (the
"Preferred Stock"). The number of shares constituting such series shall be
7,500.
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EXHIBIT 3.1
2. DIVIDENDS.
(a) CUMULATIVE. The holders of the Preferred Shares shall be
entitled to receive cumulative dividends at the per share rate of four percent
(4%) of the Liquidation Preference of each Preferred Share, per annum accruing
daily and compounded quarterly on March 31, June 30, September 30 and December
31 of each year (each a "Dividend Payment Date") commencing with the first
Dividend Payment Date occurring after the original issuance date of such share,
in preference and priority to any payment of any dividend on the Common Stock
(as defined below) or any other class or series of equity security of the
Corporation. Such dividends shall accrue on any given share from the most recent
date on which a dividend has been paid with respect to such share, or if no
dividends have been paid, from the date of the original issuance of such share,
and such dividends shall accrue from day to day whether or not declared, based
on the actual number of days elapsed. If at any time dividends on the
outstanding Preferred Shares at the rate set forth above shall not have been
paid or declared and set apart for payment with respect to all preceding
periods, the amount of the deficiency shall be fully paid or declared and set
apart for payment, but without interest, before any distribution, whether by way
of dividend or otherwise, shall be declared or paid upon or set apart for the
shares of any other class or series of equity security of the Corporation. For
so long as any Preferred Shares are outstanding, the Corporation shall not pay
any dividends on any shares of Common Stock or any shares of any other capital
stock, or repurchase any shares of Common Stock (other than the repurchase of
shares of Common Stock issued pursuant to employment or consulting agreements
with the Corporation, which are repurchased upon termination of employment or
services for consideration no greater than the original issue price) or capital
stock, without having received written consent of two-thirds in interest of the
holders of Preferred Shares.
(b) PIK PAYMENT OR CASH PAYMENT. Any dividend payable on the
outstanding Preferred Shares shall be paid by adding the amount thereof to the
Liquidation Preference (as defined below) of such Preferred Shares. Upon the
payment of dividends as required by the immediately preceding sentence, such
dividends will be deemed paid in full. Notwithstanding the foregoing, the
Corporation may pay dividends in cash if on 10 Trading Days' (as defined below)
irrevocable prior written notice, it informs the holders of the Preferred Shares
of its election to pay cash dividends. Following notice of payment of cash
dividends by the Corporation, all dividends on the Preferred Shares shall be
paid in cash, until such time as the Corporation provides 10 Trading Days'
irrevocable written notice to the holders of Preferred Shares of its election to
pay dividends in-kind.
3. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Preferred Shares shall be entitled to receive, out of the assets of the
Corporation available for distribution to stockholders, prior and in preference
to any distribution of any assets
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EXHIBIT 3.1
of the Corporation to the holders of any other class or series of equity
securities, the amount of $1,000 per share plus (i) dividends added to the
Liquidation Preference in accordance with Section 2(b) above; (ii) all accrued
but unpaid dividends; and (iii) all "Monthly Delay Payments" payable under the
Registration Rights Agreement (as defined below) (the "Liquidation Preference").
After payment of the full amount of the Liquidation Preference, in the case of a
liquidation dissolution or winding up of the Corporation, the holders of
Preferred Shares will not be entitled to any further participation in any
distribution of assets of the Corporation; provided that the foregoing shall not
affect any rights which holders of Preferred Shares may have with respect to any
requirement that the Company repurchase the Preferred Shares or for any right to
monetary damages. A Change of Control (as defined below) shall not, IPSO FACTO,
be deemed a liquidation, dissolution or winding up of the Corporation.
4. ISSUANCE OF PREFERRED SHARES. The Preferred Shares shall be issued by
the Corporation pursuant to a Preferred Stock Investment Agreement, dated on or
about the date hereof ("Investment Agreement") between the Corporation and the
initial subscriber for the Preferred Shares thereunder (the "Subscriber"), and
holders of Preferred Shares shall enjoy the benefits of the Registration Rights
Agreement, dated the date hereof ("Registration Rights Agreement") between such
parties in connection with the Investment Agreement.
5. CONVERSION. Each holder of the Preferred Shares shall have the right at
any time and from time to time, at the option of such holder, to convert all
Preferred Shares held by such holder, or if converting less than all such
shares, Preferred Shares having an aggregate Liquidation Preference of at least
$250,000, for such number of fully paid, validly issued and nonassessable shares
("Common Shares") of common stock, par value $0.01 of the Corporation ("Common
Stock"), free and clear of any liens, claims or encumbrances, as is determined
by dividing (i) the Liquidation Preference times the number of Preferred Shares
being converted (the "Conversion Amount"), by (ii) the applicable Conversion
Price determined as hereinafter provided in effect on the Conversion Date.
Immediately following such conversion, the rights of the holders of converted
Preferred Shares shall cease and the persons entitled to receive the Common
Shares upon the conversion of Preferred Shares shall be treated for all purposes
as having become the owners of such Common Shares, subject to the rights
provided herein to holders.
(a) MECHANICS OF CONVERSION. To convert Preferred Shares into Common
Shares, the holder shall give written notice ("Conversion Notice") to the
Corporation in the form of page 1 of Exhibit A hereto (which Conversion Notice
will be given by facsimile transmission no later than the Conversion Date and
sent via overnight delivery no later than one Trading day after the Conversion
Date) stating that such holder elects to convert the same and shall state
therein the number of Preferred Shares to be converted and the name or names in
which such holder wishes the certificate or certificates for
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EXHIBIT 3.1
Common Shares to be issued (the date of such Conversion Notice shall be referred
to herein as the "Conversion Date"). Either simultaneously with the delivery of
the Conversion Notice, or within one (1) Trading Day (as defined below)
thereafter, the holder shall deliver (which also may be done by facsimile
transmission) page 2 to Exhibit A hereto indicating the computation of the
number of Common Shares to be received. As soon as possible after delivery of
the Conversion Notice, such holder shall surrender the certificate or
certificates representing the Preferred Shares being converted, duly endorsed,
at the office of the Corporation or, if identified in writing to all the holders
by the Corporation, at the offices of any transfer agent for such shares. The
Corporation shall, immediately upon receipt of such Conversion Notice, issue and
deliver to or upon the order of such holder, against delivery of the
certificates representing the Preferred Shares which have been converted, a
certificate or certificates for the number of Common Shares to which such holder
shall be entitled (with the number of and denomination of such certificates
designated by such holder), and the Corporation shall immediately issue and
deliver to such holder a certificate or certificates for the number of Preferred
Shares (including any fractional shares) which such holder has not yet elected
to convert hereunder but which are evidenced in part by the certificate(s)
delivered to the Corporation in connection with such Conversion Notice. The
Corporation shall effect such issuance of Common Shares (and certificates for
unconverted Preferred Shares) within three (3) Trading Days of the Conversion
Date and shall transmit the certificates by messenger or overnight delivery
service to reach the address designated by such holder within three (3) Trading
Days after the receipt of such Conversion Notice ("T+3"); provided that prior to
such date, the Corporation shall have received the stock certificates
representing the Preferred Shares (or an affidavit of lost certificate). If such
certificates or affidavit are not received by such date, the Corporation will
deliver certificates for Common Shares within one Trading Day of receipt of the
Preferred Share certificates or affidavit of lost certificate. Notwithstanding
the foregoing, the Corporation shall not be required to honor the Conversion
Notice unless it shall have received the certificate or certificates
representing the Preferred shares being converted within 5 Trading Days of
receipt of the Conversion Notice. If certificates representing Preferred Shares
have been delivered to the Corporation and if certificates evidencing the Common
Shares are not received by the holder within five (5) Trading Days of the
Conversion Notice, then the holder will be entitled to revoke and withdraw its
Conversion Notice, in whole or in part, at any time prior to its receipt of
those certificates. In lieu of delivering physical certificates representing the
Common Shares issuable upon conversion of Preferred Shares, provided the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
holder, the Corporation shall use its best efforts to cause its transfer agent
to electronically transmit the Common Shares issuable upon conversion or
exercise to the holder, by crediting the account of the holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The parties agree to coordinate with DTC
to accomplish this objective. The
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EXHIBIT 3.1
conversion pursuant to this Section 5 shall be deemed to have been made
immediately prior to the close of business on the Conversion Date. The person or
persons entitled to receive the Common Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such Common
Shares at the close of business on the Conversion Date.
The term "Trading Day" means a day on which there is trading on
the Nasdaq National Market or such other market or exchange on which the Common
Stock is then principally traded.
If a holder of Preferred Shares converts any of such holder's
Preferred Shares, the Corporation shall pay any documentary or stamp or similar
issue or transfer tax due on the issue of shares of Common Stock upon the
conversion. However, such holder shall pay any such tax that is due because the
shares of Common Stock are issued in a name other than such holder's name.
THE CORPORATION'S OBLIGATION TO ISSUE COMMON SHARES UPON
CONVERSION OF PREFERRED SHARES SHALL, EXCEPT AS SET FORTH BELOW, BE ABSOLUTE, IS
INDEPENDENT OF ANY COVENANT OF ANY HOLDER OF PREFERRED SHARES, AND SHALL NOT BE
SUBJECT TO: (i) ANY OFFSET OR DEFENSE; OR (ii) ANY CLAIMS AGAINST THE HOLDERS OF
PREFERRED SHARES WHETHER PURSUANT TO THIS CERTIFICATE, THE INVESTMENT AGREEMENT,
THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE, INCLUDING, WITHOUT LIMITATION,
ANY CLAIMS ARISING OUT OF ANY SELLING OR SHORT-SELLING ACTIVITY BY HOLDERS OF
PREFERRED SHARES. NOTWITHSTANDING THE FOREGOING, SUCH OBLIGATION SHALL BE
SUBJECT TO (1) THE HOLDER'S COMPLIANCE WITH THE NOTICE AND DELIVERY REQUIREMENTS
SET FORTH ABOVE IN THIS SECTION 5(a).
(b) Determination of Conversion Price.
The Conversion Price applicable with respect to the Preferred
Shares in each Tranche (the "Conversion Price"), shall be the lesser of:
(A) a price equal to 20% above the Market Price (as defined
below), as adjusted as set forth below (the "Fixed Price") or
(B) 98% of the average of the two lowest daily stock trade
prices ("Low Trade Prices") of the Common Stock recorded on the Principal Market
(as defined below) during the six (6) consecutive Trading Days (the "Purchase
Price Period") ending on the day prior to and not including the Conversion Date.
As used herein, "Principal Market" shall mean Nasdaq National
Market or such other market where the Common Stock is then listed for trading.
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EXHIBIT 3.1
As used herein, "Market Price" shall mean the closing bid price
of the Common Stock recorded on the Principal Market on the Trading Day
immediately prior to the date of the Investment Agreement.
(c) Stock Splits; Dividends; Adjustments.
i. If the Corporation, at any time while the Preferred Shares
are outstanding, (A) shall pay a stock dividend or otherwise make a distribution
or distributions on any equity securities (including instruments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (B) subdivide outstanding Common Shares into a larger number of shares,
or (C) combine outstanding Common Stock into a smaller number of shares, then
each Affected Conversion Price (as defined below) shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(i) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
As used herein, the Affected Conversion Prices (each an
"Affected Conversion Price") shall refer to: (i) the Fixed Price; and (ii) each
reported price for the Common Stock on the Principal Market occurring on any
Trading Day included in the Purchase Price Period, which Trading Day occurred
before the record date in the case of events referred to in clause (A) of this
subparagraph 5(c)(i) and the effective date, in the case of the events referred
to in clauses (B) and (C) of this subparagraph 5(c)(i).
ii. In the event that the Corporation issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock (other than Preferred Shares), or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of its Common Stock
(other than shares or options issued or which may be issued pursuant to (i) the
Corporation's current or future employee, director or BONA FIDE consultant
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the date of the Investment Agreement and listed in the
Corporation's most recent periodic report filed under the Securities Exchange
Act of 1934, as amended (ii) strategic corporate alliances not undertaken
principally for financing purposes, (iii) arrangements with the holders of
Preferred Shares or (iv) acquisitions of other entities by the Corporation) at
an effective purchase price per share which is less than greater of (1) the
closing market price per share of the Common Stock on the Principal Market on
the Trading Day next preceding such issue or sale or, in the case of issuances
to holders of its Common stock, the date fixed for the determination of
stockholders entitled to receive such warrants, rights, or options ("Fair Market
Price") or (2) the Fixed Price, then in each such case, the Fixed Price in
effect immediately prior to such issue or sale or record date, as applicable,
shall be reduced effective concurrently
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EXHIBIT 3.1
with such issue or sale to an amount determined by multiplying the Fixed Price
then in effect by a fraction, (x) the numerator of which shall be the sum of (1)
the number of shares of Common Stock and Convertible Securities (as defined
below) outstanding immediately prior to such issue or sale, plus (2) the number
of shares of Common Stock which the aggregate consideration received by the
Corporation for such additional shares would purchase at such Fixed Price or
Fair Market Price, as the case may be; and (y) the denominator of which shall be
the number of shares of Common Stock and Convertible Securities (as defined
below) of the Company outstanding immediately after such issue or sale.
For purposes of the preceding paragraph, in the event that the
effective purchase price is less than both the Fair Market Price and the Fixed
Price, then the calculation method which yields the greatest downward adjustment
in the Conversion Price shall be used.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("Convertible Securities"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, and the aggregate consideration received by
the Corporation for the issuance or sale of such Convertible Securities shall be
deemed to include any consideration that would be received by the Company in
connection with the exercise, exchange or conversion of such Convertible
Securities, provided that no further adjustment shall be made upon the actual
issuance of Common Stock upon exercise, exchange or conversion of such
Convertible Securities.
iii. If the Corporation, at any time while the Preferred Shares
are outstanding, shall distribute to all holders of Common Stock evidences of
its indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Corporation or any of its subsidiaries (excluding
those referred to in Sections 5(c)(i) or 5(c)(ii) above), then concurrently with
such distributions to holder of Common Stock, the Corporation shall distribute
to holders of the Preferred Shares, the amount of such indebtedness, assets,
cash or rights or warrants which the holders of Preferred Shares would have
received had they converted their Preferred Shares into Common Shares
immediately prior to the record date for such distribution.
iv. Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(i), (ii) or (iii), the Corporation shall promptly mail to each
holder of the Preferred Shares a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
v. All calculations under this Section 5(c) shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
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EXHIBIT 3.1
vi. No adjustment in the Conversion Price shall reduce the
Conversion price below the then par value of the Common Stock.
vii. The Corporation from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least 20 Trading
Days and if the reduction is irrevocable during the period. Whenever the
Conversion Price is reduced, the Corporation shall mail to the holders of
Preferred Shares a notice of the reduction. The Corporation shall mail, first
class, postage prepaid, the notice at least 15 days before the date the reduced
Conversion Price takes effect. The notice shall state the reduced Conversion
Price and the period it will be in effect. A reduction of the Conversion Price
does not change or adjust the Conversion Price otherwise in effect for purposes
of Section 5(c)(i), (ii), or (iii).
(d) NOTICE OF RECORD DATE. In the event of any taking by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional Common Shares, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall deliver to each holder of Preferred Shares at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
(e) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of Common Shares on conversion of
Preferred Shares pursuant hereto. However, the holder of any Preferred Shares
shall pay any tax that is due because the Common Shares issuable upon conversion
thereof are issued in a name other than such holder's name.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Stock, solely for the purposes of effecting the conversion of the
Preferred Shares, an amount of Common Shares equal to 200% of the number of
shares issuable upon conversion of the Preferred Shares at the then applicable
Conversion Price. The Corporation promptly will take such corporate action as
may, in the opinion of its outside counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including without limitation engaging in best
efforts to obtain the requisite stockholder approval.
(g) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any Preferred Shares. All Common Shares (including fractions
thereof) issuable upon conversion of more than one Preferred Share by a holder
thereof and all
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EXHIBIT 3.1
Preferred Shares issuable upon the purchase thereof shall be aggregated for
purposes of determining whether the conversion and/or purchase would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion and/or purchase would result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any fractional
share, either round up the number of shares to the next highest whole number or,
at the Corporation's option, pay the holder otherwise entitled to such fraction
a sum in cash equal to the fair market value of such fraction on the Conversion
Date (as determined in good faith by the Board of Directors of the Corporation).
(h) REORGANIZATION, MERGER OR GOING PRIVATE. In case of any
reorganization or any reclassification of the capital stock of the Corporation
or any consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale or transfer of all or substantially all of
the assets of the Corporation to any other person or a "going private"
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act, then, as
part of such reorganization, consolidation, merger, or transfer if the holders
of shares of Common Stock receive any publicly traded securities as part or all
of the consideration for such reorganization, consolidation, merger or sale,
then it shall be a condition precedent of any such event or transaction that
provision shall be made such that each Preferred Share shall thereafter be
convertible into such new securities at a conversion price and pricing formula
which places the holders of Preferred Shares in an economically equivalent
position as they would have been if not for such event. In addition to the
foregoing, if the holders of shares of Common Stock receive any non-publicly
traded securities or other property or cash as part or all of the consideration
for such reorganization, consolidation, merger or sale, then such distribution
shall be treated to the extent thereof as a distribution under Section 5(c)
above and such Section shall also apply to such distribution.
(i) Mandatory Conversion.
(x) Subject to subsection (i)(y) below, the Preferred Shares
shall be automatically converted into Common Shares on the three month
anniversary of effectiveness of the registration statement covering the Common
Shares issuable upon conversion of Preferred Shares and filed pursuant to the
Registration Rights Agreement (the Registration Statement); provided, however,
that if Preferred Shares are issued pursuant to any Tranche after the Initial
Tranche, all Preferred Shares shall be automatically converted into Common
Shares on the four month anniversary of the effectiveness of the Registration
Statement; and further provided that such Mandatory Conversion Date shall be
deferred, at the sole option of a holder of Preferred Shares, for such number of
days as is equal to the number of days (A) there is a lack of Effective
Registration (as defined below), but not including the first 90 days after the
Closing; (B) there is not a sufficient amount of Common Stock available for
conversion of all outstanding Preferred Shares, (C) for any other reason the
Corporation refuses or
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EXHIBIT 3.1
announces its refusal to honor conversion of Preferred Shares, other than for
failure to comply with the notice and delivery requirements of Section 5(a)
above; or (D) for any other reason there is a suspension, restriction or
limitation in the ability of holders of Preferred Shares to sell Common Shares
received upon conversion of Preferred Shares pursuant to the prospectus included
in the Registration Rights Agreement.
For purposes of the preceding paragraph, a lack of Effective
Registration shall be deemed to have occurred at any time the Common Shares
issuable upon conversion of the Preferred Shares are not capable of being sold
on an Approved Market (as defined in the Investment Agreement) pursuant to an
effective registration statement and deliverable prospectus.
(y) Notwithstanding the preceding subsection (i)(x), no holder
of Preferred Shares shall be obligated to convert any Preferred Shares held by
such holder on the Mandatory Conversion Date unless and until each of the
following conditions has been satisfied or exists, each of which shall be a
condition precedent to any such forced conversion:
(A) no material default or breach exists which has not been
cured, and no event shall have occurred which constitutes (or would constitute
with notice or the passage of time or both) a material default or breach of the
Investment Agreement, the Registration Rights Agreement, or this Certificate of
Designations, which has not been cured;
(B) none of the events described in clauses (i) through (iv)
of Section 2(b) of the Registration Rights Agreement shall have occurred and be
continuing;
(C) the Registration Statement is effective and holders have
received unlegended certificates representing Common Shares with respect to all
conversions for which Conversion Notices have been given; and
(D) the Corporation and its subsidiaries on a consolidated
basis has assets with a net realizable fair market value exceeding its
liabilities and is able to pay all its debts as they become due in the ordinary
course of business, and the Corporation is not subject to any liquidation,
dissolution or winding up of its affairs.
(z) Notwithstanding, Section 5(i)(x) above, no holder's
Preferred Shares shall be subject to mandatory conversion to the extent such
mandatory conversion would result in the holder of Preferred Shares exceeding
the limitation contained in Section 5(j) below; provided that for purposes of
this Section 5(i)(z), beneficial ownership of Common Shares acquired other than
through ownership of Preferred Shares and acquired after the date of the
Investment Agreement shall be disregarded. In such event, the Preferred Shares
of such holder would be converted in such amount until such limitation is
reached and with respect to the balance of such holder's Preferred Shares,
10
<PAGE>
EXHIBIT 3.1
the Mandatory Conversion Date shall be moved to a date 90 days thereafter,
subject to the provisions of Section 5(i) applying to such balance.
Such forced conversion shall be subject to and governed by all
the provisions relating to voluntary conversion of the Preferred Shares
contained herein.
(j) Limitations on Holder's Right to Convert.
i. Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by the holder upon
conversion pursuant to the terms hereof shall not exceed a number that, when
added to the total number of Common Shares deemed beneficially owned by such
holder (other than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the holder's right to convert, exercise or
purchase similar to the limitation set forth herein), together with all shares
of Common Stock deemed beneficially owned by the holder's "affiliates" (as
defined in Rule 144 of the Act) that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange Act
of 1934 as amended, exists, would exceed 9.99% of the total issued and
outstanding shares of the Company Stock (the "RESTRICTED OWNERSHIP PERCENTAGE");
provided that (w) each holder shall have the right at any time and from time to
time to reduce its Restricted Ownership Percentage immediately upon notice to
the Company and (x) each holder shall have the right (subject to waiver) at any
time and from time to time, to increase its Restricted Ownership Percentage
immediately in the event of the announcement as pending or planned, of a
transaction or event referred to in Section 5(m) below.
ii. Each time (a "COVENANT TIME") the holder makes a Triggering
Acquisition (as defined below) of Common Shares (the "TRIGGERING SHARES")
pursuant to the Transaction Documents (as defined in the Investment Agreement),
the holder will be deemed to covenant that it will not, during the balance of
the day on which such Triggering Acquisition occurs, and during the 61-day
period beginning immediately after that day, acquire additional shares of Common
Stock pursuant to rights-to-acquire existing at that Covenant Time, if the
aggregate amount of such additional shares so acquired (without reducing that
amount by any dispositions) would exceed (x) 9.99% of the number of Common
Shares outstanding at that Covenant Time (including the Triggering Shares) minus
(y) the number of shares of Common Shares actually owned by the holder at that
Covenant Time (regardless of how or when acquired, and including the Triggering
Shares). A "TRIGGERING ACQUISITION" means the giving of a Conversion Notice;
provided, however, that with respect to the giving of such Conversion Notice, if
the associated issuance of Common Shares does not occur, such event shall cease
to be a Triggering Acquisition and the related covenant under this paragraph
shall terminate. At each Covenant Time, the holder shall be deemed to waive any
right it would otherwise have to acquire Common Shares to the extent that such
acquisition would violate any covenant given by the holder under this paragraph.
Notwithstanding anything to the
11
<PAGE>
EXHIBIT 3.1
contrary in the Transaction Documents, in the event of a conflict between any
covenant given under this paragraph and any obligation of the holder to convert
Preferred Shares pursuant to the Transaction Documents, the former shall
supersede the latter, and the latter shall be reduced accordingly. For the
avoidance of doubt:
(A) The covenant to be given pursuant to this paragraph will
be given at every Covenant Time and shall be calculated based on the
circumstances then in effect. The making of a covenant at one Covenant Time
shall not terminate or modify any prior covenants.
(B) The holder may therefore from time to time be subject to
multiple such covenants, each one having been made at a different Covenant Time,
and some possibly being more restrictive than others. The holder must comply
with all such covenants then in effect.
(k) CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The Corporation
shall promptly furnish or cause to be furnished to each holder a certificate
prepared by the Corporation setting forth any adjustments or readjustments of
the Conversion Price pursuant to this Section 5.
(l) SPECIFIC ENFORCEMENT. The Corporation agrees that irreparable
damage would occur in the event that any of the provisions of this Certificate
of Designations were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the holders of Preferred
Shares shall be entitled to specific performance, injunctive relief or other
equitable remedies to prevent or cure breaches of the provisions of this
Certificate of Designations and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which any of them may be
entitled under agreement, at law or in equity.
(m) MANDATORY REPURCHASE. Each holder shall have the unilateral
option and right to compel the Corporation to repurchase any or all of such
holder's Preferred Shares within 3 days of a written notice requiring such
repurchase, at a price per Preferred Share equal to 115% of the Liquidation
Preference then in effect if any of the following events involving the
Corporation shall have occurred:
i. A CHANGE IN CONTROL TRANSACTION (AS DEFINED BELOW);
ii. A "GOING PRIVATE" TRANSACTION UNDER RULE 13e-3 PROMULGATED
PURSUANT TO THE EXCHANGE ACT; OR
iii. A TENDER OFFER BY THE CORPORATION UNDER RULE 13e-4
PROMULGATED PURSUANT TO THE EXCHANGE ACT.
(A) "CHANGE IN CONTROL TRANSACTION" WILL BE DEEMED TO EXIST
IF (i) THERE OCCURS ANY CONSOLIDATION OR MERGER OF THE CORPORATION WITH OR INTO
12
<PAGE>
EXHIBIT 3.1
ANY OTHER CORPORATION OR OTHER ENTITY OR PERSON (WHETHER OR NOT THE CORPORATION
IS THE SURVIVING CORPORATION), OR ANY OTHER CORPORATE REORGANIZATION OR
TRANSACTION OR SERIES OF RELATED TRANSACTIONS IN WHICH IN EXCESS OF 50% OF THE
CORPORATION'S VOTING POWER IS TRANSFERRED THROUGH A MERGER, CONSOLIDATION,
TENDER OFFER OR SIMILAR TRANSACTION, (ii) ANY PERSON (AS DEFINED IN SECTION
13(d) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT")),
TOGETHER WITH ITS AFFILIATES AND ASSOCIATES (AS SUCH TERMS ARE DEFINED IN RULE
405 UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")), BENEFICIALLY OWNS
OR IS DEEMED TO BENEFICIALLY OWN (AS DESCRIBED IN RULE 13d-3 UNDER THE EXCHANGE
ACT WITHOUT REGARD TO THE 60-DAY EXERCISE PERIOD) IN EXCESS OF 50% OF THE
CORPORATION'S VOTING POWER, (iii) THERE IS A REPLACEMENT OF MORE THAN ONE-HALF
OF THE MEMBERS OF THE CORPORATION'S BOARD OF DIRECTORS WHICH IS NOT APPROVED BY
THOSE INDIVIDUALS WHO ARE MEMBERS OF THE CORPORATION'S BOARD OF DIRECTORS ON THE
DATE THEREOF, IN ONE OR A SERIES OF RELATED TRANSACTIONS OR (iv) A SALE OR
TRANSFER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE CORPORATION,
DETERMINED ON A CONSOLIDATED BASIS.
(n) MANDATORY REPURCHASE IN EVENT OF NON-COMPLIANCE WITH WARRANTS.
In the event that the Corporation (i) is not in compliance with its obligations
to deliver Common Shares pursuant to the terms of Warrants issued pursuant to
the Common Stock Investment Agreement, dated as of October 4,1999 by and between
the Corporation and Manchester Securities Corp. ("Manchester") (the "Warrants"),
which Warrants are held by a holder of Preferred Shares or an affiliate of such
holder or (ii) repudiates or disavows such obligations, then such holder of
Preferred Shares shall have the unilateral option and right, in addition to any
other rights or remedies which such holder or Manchester may have, all of which
shall be cumulative, to compel the Corporation to repurchase any and all of such
holder's Preferred Shares within 3 days of a written notice requiring such
repurchase, at a price per Preferred Share equal to the greater of: (1) 125% of
the Liquidation Preference per share then in effect or (2) the Liquidation
Preference per share divided by the Conversion Price multiplied by the greater
of the last closing price of the Common Shares on the date a holder exercises
its option pursuant to this provision to require repurchase of Preferred Shares
or the date on which the event triggering the holder's remedies under this
provision first occurred.
6. VOTING RIGHTS. In addition to all other requirements imposed by
Delaware law, and all other voting rights granted under the Corporation's
Certificate of Incorporation, the affirmative vote of two-thirds in interest of
the Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment, modification or repeal of this Certificate of Designations (whether
by merger, consolidation or otherwise) or for any merger, reclassification,
consolidation or reorganization,) or (ii) any amendment to the Certificate of
Incorporation or by-laws of the Corporation that may amend or change or
adversely affect any of the rights, preferences, or privileges of the Preferred
Shares, provided, however, that holders of Preferred Shares (other than the
Investor under the Investment Agreement and their affiliates) who are affiliates
of the
13
<PAGE>
EXHIBIT 3.1
Corporation (and the Corporation itself) shall not participate in such vote and
the Preferred Shares of such holders shall be disregarded and deemed not to be
outstanding for purposes of such vote.
7. NOTICES. The Corporation shall distribute to the holders of Preferred
Shares copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Corporation, at such times and
by such method as such documents are distributed to such holders of such Common
Stock.
8. REPLACEMENT CERTIFICATES. The certificate(s) representing the Preferred
Shares held by any holder of Preferred Shares may be exchanged by such holder at
any time and from time to time for certificates with different denominations
representing an equal aggregate number of Preferred Shares, as reasonably
requested by such holder, upon surrendering the same. No service charge will be
made for such registration or transfer or exchange.
9. ATTORNEYS' FEES. In connection with enforcement by a holder of
Preferred Shares of any obligation of the Corporation hereunder, the prevailing
party shall be entitled to recovery of reasonable attorneys' fees and expenses
incurred.
10. NO REISSUANCE. No Preferred Shares acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued.
11. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Preferred Shares set forth in this Certificate of Designations (as this
Certificate of Designations may be amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule or law or public
policy, all other rights, preferences and limitations set forth in this
Certificate of Designations, which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation shall nevertheless
remain in full force and effect, and no right, preference or limitation herein
set forth be deemed dependent upon any such other right, preference or
limitation unless so expressed herein.
12. LIMITATIONS. Except as may otherwise be required by law and as are set
forth in the Investment Agreement and the Registration Rights Agreement, the
Preferred Shares shall not have any powers, preference or relative
participating, optional or other special rights other than those specifically
set forth in this Certificate of Designation (as may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
14
<PAGE>
EXHIBIT 3.1
Signed on December 17, 1999
SECURE COMPUTING CORPORATION
By: /s/ Mary Budge
-------------------------------------
Name: Mary Budge
Title: Assistant Corporate Secretary
15
<PAGE>
EXHIBIT 3.1
EXHIBIT A
(To be Executed by Holder
in order to Convert Preferred Shares)
CONVERSION NOTICE
FOR
SERIES D 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The undersigned, as a holder ("Holder") of shares of SERIES D 4% Cumulative
Convertible Preferred Stock ("Preferred Shares") of Secure Computing Corporation
(the "Corporation"), hereby irrevocably elects to convert _____________
Preferred Shares for shares ("Common Shares") of common stock, par value $0.01
per share (the "Common Stock"), of the Corporation according to the terms and
conditions of the Certificate of Designations for the Preferred Shares as of the
date written below. The undersigned hereby requests that share certificates for
the Common Shares to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. No fee will be charged to the Holder of Preferred
Shares for any conversion. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Certificate of
Designations.
Conversion Date: __________________________
Conversion Information: NAME OF HOLDER:
By:
-------------------------------------
Print Name:
Print Title:
Print Address of Holder:
-----------------------------------------
-----------------------------------------
Issue Common Stock to:
------------------
at:
-------------------------------------
-----------------------------------------
IF COMMON SHARES ARE TO BE ISSUED TO A PERSON OTHER THAN HOLDER,
HOLDER'S SIGNATURE MUST BE GUARANTEED BELOW:
1
<PAGE>
EXHIBIT 3.1
SIGNATURE GUARANTEED BY:
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON PAGE 2
OF THE CONVERSION NOTICE.
PAGE 1 OF CONVERSION NOTICE
2
<PAGE>
EXHIBIT 3.1
PAGE 2 TO CONVERSION NOTICE DATED FOR:
---------------------- ------------------
(CONVERSION DATE) (NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Number of Preferred Shares converted: ____________ shares
Number of Preferred Shares converted x Liquidation $
Preference
TOTAL DOLLAR AMOUNT CONVERTED $
==============
CONVERSION PRICE $
Number of Common Shares = Total dollar amount converted =
----------------------------- --------------
Conversion Price
NUMBER OF COMMON SHARES =
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for Common Shares in the following amount(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the Holder is receiving certificate(s) for Preferred Shares upon the
conversion, please issue and deliver _____ certificate(s) for Preferred Shares
in the following amounts:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS OF THE POWERS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS
OF PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS THEREOF
OF
SERIES E 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
FOR
SECURE COMPUTING CORPORATION
SECURE COMPUTING CORPORATION, a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, does hereby make this Certificate of Designations and does
hereby state and certify that pursuant to the authority expressly vested in the
Board of Directors of the Corporation by the Certificate of Incorporation of the
Corporation, the Board of Directors duly adopted the following resolutions,
which resolutions remain in full force and effect as of the date hereof:
RESOLVED, that, pursuant to Article Fourth of the Certificate of
Incorporation of the Corporation, the Board of Directors hereby authorizes the
issuance of, and fixes the designation and preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions, of a series of Preferred Stock consisting of
17,500 shares, par value $0.01, to be designated "Series E 4% Cumulative
Convertible Preferred Stock" (the "Preferred Shares").
RESOLVED, that subject to the terms and conditions of the Put and Call
Agreement (as defined herein), 8,750 Preferred Shares may be issued in one
tranche ("Tranche A"), subject to adjustment as set forth in the Put and Call
Agreement (as defined herein) and 8,750 Preferred Shares may be issued in a
subsequent tranche ("Tranche B"), subject to adjustment as set forth in the Put
and Call Agreement.
RESOLVED, that each of the Preferred Shares shall rank equally in all
respects and shall be subject to the following terms and provisions:
1. DESIGNATION. There is hereby created out of the authorized and unissued
shares of preferred stock of the Corporation a series of preferred stock
designated as the "Series E 4% Cumulative Convertible Preferred Stock" (the
"Preferred Stock"). The number of shares constituting such series shall be
17,500.
2. DIVIDENDS.
(a) CUMULATIVE. The holders of the Preferred Shares shall be
entitled to receive cumulative dividends at the per share rate of four percent
(4%) of the Liquidation Preference of each Preferred Share, per annum accruing
daily and compounded quarterly
1
<PAGE>
EXHIBIT 3.2
on March 31, June 30, September 30 and December 31 of each year (each a
"Dividend Payment Date") commencing with the first Dividend Payment Date
occurring after the original issuance date of such share, in preference and
priority to any payment of any dividend on the Common Stock (as defined below)
or any other class or series of equity security of the Corporation. Such
dividends shall accrue on any given share from the most recent date on which a
dividend has been paid with respect to such share, or if no dividends have been
paid, from the date of the original issuance of such share, and such dividends
shall accrue from day to day whether or not declared, based on the actual number
of days elapsed. If at any time dividends on the outstanding Preferred Shares at
the rate set forth above shall not have been paid or declared and set apart for
payment with respect to all preceding periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment, but without interest,
before any distribution, whether by way of dividend or otherwise, shall be
declared or paid upon or set apart for the shares of any other class or series
of equity security of the Corporation. For so long as any Preferred Shares are
outstanding, the Corporation shall not pay any dividends on any shares of Common
Stock or any shares of any other capital stock, or repurchase any shares of
Common Stock (other than the repurchase of shares of Common Stock issued
pursuant to employment or consulting agreements with the Corporation, which are
repurchased upon termination of employment or services for consideration no
greater than the original issue price) or capital stock, without having received
written consent of two-thirds in interest of the holders of Preferred Shares.
(b) PIK PAYMENT OR CASH PAYMENT. Any dividend payable on the
outstanding Preferred Shares shall be paid by adding the amount thereof to the
Liquidation Preference (as defined below) of such Preferred Shares. Upon the
payment of dividends as required by the immediately preceding sentence, such
dividends will be deemed paid in full. Notwithstanding the foregoing, the
Corporation may pay dividends in cash if on 10 Trading Days' (as defined below)
irrevocable prior written notice, it informs the holders of the Preferred Shares
of its election to pay cash dividends. Following notice of payment of cash
dividends by the Corporation, all dividends on the Preferred Shares shall be
paid in cash, until such time as the Corporation provides 10 Trading Days'
irrevocable written notice to the holders of Preferred Shares of its election to
pay dividends in-kind.
3. LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Preferred Shares shall be entitled to receive, out of the assets of the
Corporation available for distribution to stockholders, prior and in preference
to any distribution of any assets of the Corporation to the holders of any other
class or series of equity securities, the amount of $1,000 per share plus (i)
dividends added to the Liquidation Preference in accordance with Section 2(b)
above; (ii) all accrued but unpaid dividends; and (iii) all "Monthly Delay
Payments" payable under the Registration Rights Agreement (as defined below)
(the "Liquidation Preference"). After payment of the full amount of the
2
<PAGE>
EXHIBIT 3.2
Liquidation Preference, in the case of a liquidation dissolution or winding up
of the Corporation, the holders of Preferred Shares will not be entitled to any
further participation in any distribution of assets of the Corporation; provided
that the foregoing shall not affect any rights which holders of Preferred Shares
may have with respect to any requirement that the Corporation repurchase the
Preferred Shares or for any right to monetary damages. A Change of Control (as
defined below) shall not, IPSO FACTO, be deemed a liquidation, dissolution or
winding up of the Corporation.
4. ISSUANCE OF PREFERRED SHARES. The Preferred Shares shall be issued by
the Corporation pursuant to a Put and Call Agreement, dated on or about the date
hereof ("Put and Call Agreement") between the Corporation and the initial
subscriber for the Preferred Shares thereunder (the "Subscriber"), and holders
of Preferred Shares shall enjoy the benefits of the Registration Rights
Agreement, dated the date hereof ("Registration Rights Agreement") between such
parties in connection with the Put and Call Agreement.
5. CONVERSION. Each holder of the Preferred Shares shall have the right at
any time and from time to time, at the option of such holder, to convert all
Preferred Shares held by such holder, or if converting less than all such
shares, Preferred Shares having an aggregate Liquidation Preference of at least
$250,000, for such number of fully paid, validly issued and nonassessable shares
("Common Shares") of common stock, par value $0.01 of the Corporation ("Common
Stock"), free and clear of any liens, claims or encumbrances, as is determined
by dividing (i) the Liquidation Preference times the number of Preferred Shares
being converted (the "Conversion Amount"), by (ii) the applicable Conversion
Price determined as hereinafter provided in effect on the Conversion Date.
Immediately following such conversion, the rights of the holders of converted
Preferred Shares shall cease and the persons entitled to receive the Common
Shares upon the conversion of Preferred Shares shall be treated for all purposes
as having become the owners of such Common Shares, subject to the rights
provided herein to holders.
(a) MECHANICS OF CONVERSION. To convert Preferred Shares into Common
Shares, the holder shall give written notice ("Conversion Notice") to the
Corporation in the form of page 1 of Exhibit A hereto (which Conversion Notice
will be given by facsimile transmission no later than the Conversion Date and
sent via overnight delivery no later than one Trading day after the Conversion
Date) stating that such holder elects to convert the same and shall state
therein the number of Preferred Shares to be converted and the name or names in
which such holder wishes the certificate or certificates for Common Shares to be
issued (the date of such Conversion Notice shall be referred to herein as the
"Conversion Date"). A Conversion Notice may be sent by the holder concurrently
with, or at any time after, the delivery of a put or call notice under the Put
and Call Agreement pursuant to which the Preferred Shares being converted are to
be acquired, even if this Certificate of Designations has not yet been filed in
Delaware.
3
<PAGE>
EXHIBIT 3.2
However, the Corporation's obligation to issue Common Shares in such event shall
be conditional upon the consummation of the purchase of such Preferred Shares. A
Conversion Notice delivered pursuant to the preceding sentence shall have the
same effect as a Conversion Notice delivered after the Preferred Shares being
converted are issued, for all purposes, including without limitation,
determination of the Conversion Date and Conversion Price. Either simultaneously
with the delivery of the Conversion Notice, or within one (1) Trading Day (as
defined below) thereafter, the holder shall deliver (which also may be done by
facsimile transmission) page 2 to Exhibit A hereto indicating the computation of
the number of Common Shares to be received. As soon as possible after delivery
of the Conversion Notice, such holder shall surrender the certificate or
certificates representing the Preferred Shares being converted, duly endorsed,
at the office of the Corporation or, if identified in writing to all the holders
by the Corporation, at the offices of any transfer agent for such shares. If the
Conversion Notice is delivered prior to the delivery to the holder by the
Corporation of the Preferred Shares being converted, then the delivery of such
Preferred Shares to such holder, and surrender to the Corporation of the
certificates representing Preferred Shares, shall be deemed to have occurred on
the books of the Corporation and the holder shall have no obligation to
surrender certificates representing such Preferred Shares. The Corporation
shall, immediately upon receipt of such Conversion Notice, issue and deliver to
or upon the order of such holder, against delivery of the certificates
representing the Preferred Shares which have been converted, a certificate or
certificates for the number of Common Shares to which such holder shall be
entitled (with the number of and denomination of such certificates designated by
such holder), and the Corporation shall immediately issue and deliver to such
holder a certificate or certificates for the number of Preferred Shares
(including any fractional shares) which such holder has not yet elected to
convert hereunder but which are evidenced in part by the certificate(s)
delivered to the Corporation in connection with such Conversion Notice. The
Corporation shall effect such issuance of Common Shares (and certificates for
unconverted Preferred Shares) within three (3) Trading Days of the Conversion
Date, regardless of whether the Preferred Shares being converted were issued on
the Conversion Date, and shall transmit the certificates by messenger or
overnight delivery service to reach the address designated by such holder within
three (3) Trading Days after the receipt of such Conversion Notice ("T+3");
provided that prior to such date, the Corporation shall have received the stock
certificates representing the Preferred Shares (or an affidavit of lost
certificate). If such certificates or affidavit are not received by such date,
the Corporation will deliver certificates for Common Shares within one Trading
Day of receipt of the Preferred Share certificates or affidavit of lost
certificate. Notwithstanding the foregoing, the Corporation shall not be
required to honor the Conversion Notice unless it shall have received the
certificate or certificates representing the Preferred shares being converted
within 5 Trading Days of receipt of the Conversion Notice. If certificates
representing Preferred Shares have been delivered to the Corporation and if
certificates evidencing the Common Shares are not received by the holder within
five (5) Trading Days of the Conversion Notice, then the holder will be entitled
to revoke and withdraw its
4
<PAGE>
EXHIBIT 3.2
Conversion Notice, in whole or in part, at any time prior to its receipt of
those certificates. In lieu of delivering physical certificates representing the
Common Shares issuable upon conversion of Preferred Shares, provided the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of the
holder, the Corporation shall use its best efforts to cause its transfer agent
to electronically transmit the Common Shares issuable upon conversion or
exercise to the holder, by crediting the account of the holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The parties agree to coordinate with DTC
to accomplish this objective. The conversion pursuant to this Section 5 shall be
deemed to have been made immediately prior to the close of business on the
Conversion Date. The person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such Common Shares at the close of business on the
Conversion Date.
The term "Trading Day" means a day on which there is trading on
the Nasdaq National Market or such other market or exchange on which the Common
Stock is then principally traded.
If a holder of Preferred Shares converts any of such holder's
Preferred Shares, the Corporation shall pay any documentary or stamp or similar
issue or transfer tax due on the issue of shares of Common Stock upon the
conversion. However, such holder shall pay any such tax that is due because the
shares of Common Stock are issued in a name other than such holder's name.
THE CORPORATION'S OBLIGATION TO ISSUE COMMON SHARES UPON
CONVERSION OF PREFERRED SHARES SHALL, EXCEPT AS SET FORTH BELOW, BE ABSOLUTE, IS
INDEPENDENT OF ANY COVENANT OF ANY HOLDER OF PREFERRED SHARES, AND SHALL NOT BE
SUBJECT TO: (i) ANY OFFSET OR DEFENSE; OR (ii) ANY CLAIMS AGAINST THE HOLDERS OF
PREFERRED SHARES WHETHER PURSUANT TO THIS CERTIFICATE, THE PUT AND CALL
AGREEMENT, THE REGISTRATION RIGHTS AGREEMENT OR OTHERWISE, INCLUDING, WITHOUT
LIMITATION, ANY CLAIMS ARISING OUT OF ANY SELLING OR SHORT-SELLING ACTIVITY BY
HOLDERS OF PREFERRED SHARES. NOTWITHSTANDING THE FOREGOING, SUCH OBLIGATION
SHALL BE SUBJECT TO (1) THE HOLDER'S COMPLIANCE WITH THE NOTICE AND DELIVERY
REQUIREMENTS SET FORTH ABOVE IN THIS SECTION 5(a) AND (2) IN THE CASE WHERE A
CONVERSION NOTICE IS BEING SENT CONCURRENTLY WITH THE EXERCISE OF A PUT OR CALL
PURSUANT TO WHICH THE PREFERRED SHARES BEING CONVERTED ARE BEING PURCHASED, THE
CONSUMMATION OF SUCH PURCHASE.
(b) Determination of Conversion Price.
The Conversion Price applicable with respect to the Preferred
Shares in each Tranche (the "Conversion Price"), shall be the lesser of:
5
<PAGE>
EXHIBIT 3.2
(A) a price equal to 20% above the Market Price (as defined
below), as adjusted as set forth below (the "Fixed Price") or
(B) 100% of the average of the two lowest daily low trade
prices ("Low Trade Prices") of the Common Stock recorded on the Principal Market
(as defined below) during the twelve (12) consecutive Trading Days (the
"Purchase Price Period") ending on the day prior to and not including the
Conversion Date.
As used herein, "Principal Market" shall mean Nasdaq National
Market or such other market where the Common Stock is then listed for trading.
As used herein, "Market Price" shall mean with respect to each
Tranche: (i) where such Tranche was acquired pursuant to the exercise of a call
option under the Put and Call Agreement, the average of the five daily closing
bid prices of the Common Stock for the five Trading Day period ending on the
Trading Day prior to the exercise of the call; or (ii) where such Tranche was
acquired pursuant to the exercise of a put option under the Put and Call
Agreement, the lesser of (A) the average of the five daily closing bid prices of
the Common Stock for the five Trading Day period ending on the Trading day prior
to exercise of the put and (B) the average of the five daily closing bid prices
of the Common Stock for the five Trading Day Period beginning on the Trading Day
after the exercise of the put.
(c) Stock Splits; Dividends; Adjustments.
i. If the Corporation, at any time while the Preferred Shares
are outstanding, (A) shall pay a stock dividend or otherwise make a distribution
or distributions on any equity securities (including instruments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (B) subdivide outstanding shares of Common Stock into a larger number of
shares, or (C) combine outstanding Common Stock into a smaller number of shares,
then each Affected Conversion Price (as defined below) shall be multiplied by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 5(c)(i) shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination.
As used herein, the Affected Conversion Prices (each an
"Affected Conversion Price") shall refer to: (i) the Fixed Price; and (ii) each
reported price for the Common Stock on the Principal Market occurring on any
Trading Day included in the Purchase Price Period, which Trading Day occurred
before the record date in the case of events referred to in clause (A) of this
subparagraph 5(c)(i) and the effective date, in the case of the events referred
to in clauses (B) and (C) of this subparagraph 5(c)(i).
6
<PAGE>
EXHIBIT 3.2
ii. In the event that the Corporation issues or sells any Common
Stock or securities which are convertible into or exchangeable for its Common
Stock (other than Preferred Shares), or any warrants or other rights to
subscribe for or to purchase or any options for the purchase of its Common Stock
(other than shares or options issued or which may be issued pursuant to (i) the
Corporation's current or future employee, director or BONA FIDE consultant
option plans or shares issued upon exercise of options, warrants or rights
outstanding on the date of the Put and Call Agreement and listed in the
Corporation's most recent periodic report filed under the Securities Exchange
Act of 1934, as amended (ii) strategic corporate alliances not undertaken
principally for financing purposes, (iii) arrangements with the holders of
Preferred Shares or (iv) acquisitions of other entities by the Corporation) at
an effective purchase price per share which is less than greater of (1) the
closing market price per share of the Common Stock on the Principal Market on
the Trading Day next preceding such issue or sale or, in the case of issuances
to holders of its Common stock, the date fixed for the determination of
stockholders entitled to receive such warrants, rights, or options ("Fair Market
Price") or (2) the Fixed Price, then in each such case, the Fixed Price in
effect immediately prior to such issue or sale or record date, as applicable,
shall be reduced effective concurrently with such issue or sale to an amount
determined by multiplying the Fixed Price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of Common Stock
and Convertible Securities (as defined below) outstanding immediately prior to
such issue or sale, plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Corporation for such additional shares
would purchase at such Fixed Price or Fair Market Price, as the case may be; and
(y) the denominator of which shall be the number of shares of Common Stock and
Convertible Securities (as defined below) of the Corporation outstanding
immediately after such issue or sale.
For purposes of the preceding paragraph, in the event that the
effective purchase price is less than both the Fair Market Price and the Fixed
Price, then the calculation method which yields the greatest downward adjustment
in the Conversion Price shall be used.
For the purposes of the foregoing adjustment, in the case of the
issuance of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("Convertible Securities"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, and the aggregate consideration received by
the Corporation for the issuance or sale of such Convertible Securities shall be
deemed to include any consideration that would be received by the Corporation in
connection with the exercise, exchange or conversion of such Convertible
Securities, provided that no further adjustment shall be made upon the actual
issuance of Common Stock upon exercise, exchange or conversion of such
Convertible Securities.
7
<PAGE>
EXHIBIT 3.2
iii. If the Corporation, at any time while the Preferred Shares
are outstanding, shall distribute to all holders of Common Stock evidences of
its indebtedness or assets or cash or rights or warrants to subscribe for or
purchase any security of the Corporation or any of its subsidiaries (excluding
those referred to in Sections 5(c)(i) or 5(c)(ii) above), then concurrently with
such distributions to holder of Common Stock, the Corporation shall distribute
to holders of the Preferred Shares, the amount of such indebtedness, assets,
cash or rights or warrants which the holders of Preferred Shares would have
received had they converted their Preferred Shares into Common Shares
immediately prior to the record date for such distribution.
iv. Whenever the Conversion Price is adjusted pursuant to
Section 5(c)(i), (ii) or (iii), the Corporation shall promptly mail to each
holder of the Preferred Shares a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
v. All calculations under this Section 5(c) shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
vi. No adjustment in the Conversion Price shall reduce the
Conversion price below the then par value of the Common Stock.
vii. The Corporation from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least 20 Trading
Days and if the reduction is irrevocable during the period. Whenever the
Conversion Price is reduced, the Corporation shall mail to the holders of
Preferred Shares a notice of the reduction. The Corporation shall mail, first
class, postage prepaid, the notice at least 15 days before the date the reduced
Conversion Price takes effect. The notice shall state the reduced Conversion
Price and the period it will be in effect. A reduction of the Conversion Price
does not change or adjust the Conversion Price otherwise in effect for purposes
of Section 5(c)(i), (ii), or (iii).
(d) NOTICE OF RECORD DATE. In the event of any taking by the
Corporation of a record date of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any security or right convertible into or
entitling the holder thereof to receive additional Common Shares, or any right
to subscribe for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, the
Corporation shall deliver to each holder of Preferred Shares at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
(e) ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of
8
<PAGE>
EXHIBIT 3.2
any issue or delivery of Common Shares on conversion of Preferred Shares
pursuant hereto. However, the holder of any Preferred Shares shall pay any tax
that is due because the Common Shares issuable upon conversion thereof are
issued in a name other than such holder's name.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
Common Stock, solely for the purposes of effecting the conversion of the
Preferred Shares, an amount of Common Shares equal to 200% of the number of
shares issuable upon conversion of the Preferred Shares at the then applicable
Conversion Price. The Corporation promptly will take such corporate action as
may, in the opinion of its outside counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including without limitation engaging in best
efforts to obtain the requisite stockholder approval.
(g) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any Preferred Shares. All Common Shares (including fractions
thereof) issuable upon conversion of more than one Preferred Share by a holder
thereof and all Preferred Shares issuable upon the purchase thereof shall be
aggregated for purposes of determining whether the conversion and/or purchase
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion and/or purchase would result in the
issuance of a fraction of a share of Common Stock, the Corporation shall, in
lieu of issuing any fractional share, either round up the number of shares to
the next highest whole number or, at the Corporation's option, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the Conversion Date (as determined in good faith by the
Board of Directors of the Corporation).
(h) REORGANIZATION, MERGER OR GOING PRIVATE. In case of any
reorganization or any reclassification of the capital stock of the Corporation
or any consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale or transfer of all or substantially all of
the assets of the Corporation to any other person or a "going private"
transaction under Rule 13e-3 promulgated pursuant to the Exchange Act, then, as
part of such reorganization, consolidation, merger, or transfer if the holders
of shares of Common Stock receive any publicly traded securities as part or all
of the consideration for such reorganization, consolidation, merger or sale,
then it shall be a condition precedent of any such event or transaction that
provision shall be made such that each Preferred Share shall thereafter be
convertible into such new securities at a conversion price and pricing formula
which places the holders of Preferred Shares in an economically equivalent
position as they would have been if not for such event. In addition to the
foregoing, if the holders of shares of Common Stock receive any non-publicly
traded securities or other property or cash as part or all of the consideration
for such reorganization, consolidation, merger or sale, then such
9
<PAGE>
EXHIBIT 3.2
distribution shall be treated to the extent thereof as a distribution under
Section 5(c) above and such Section shall also apply to such distribution.
(i) Mandatory Conversion.
(x) Subject to subsection (i)(y) below, the Preferred Shares in
each Tranche shall be automatically converted into Common Shares four months
after the effectiveness of the registration statement covering the Common Shares
issuable upon conversion of Preferred Shares in such Tranche and filed pursuant
to the Registration Rights Agreement (a "Registration Statement") (a "Mandatory
Conversion Date"); provided that such Mandatory Conversion Date shall be
deferred, at the sole option of a holder of Preferred Shares, for such number of
days as is equal to the number of days (A) there is a lack of Effective
Registration (as defined below), but not including the first 60 days after the
Closing pursuant to which such Tranche was acquired; (B) there is not a
sufficient amount of Common Stock available for conversion of all outstanding
Preferred Shares, (C) for any other reason the Corporation refuses or announces
its refusal to honor conversion of Preferred Shares, other than for failure to
comply with the notice and delivery requirements of Section 5(a) above; or (D)
for any reason, after the Registration Statement initially is declared
effective, there is a suspension, restriction or limitation in the ability of
holders of Preferred Shares to sell Common Shares received upon conversion of
Preferred Shares pursuant to the prospectus included in the Registration
Statement.
For purposes of the preceding paragraph, a lack of Effective
Registration shall be deemed to have occurred at any time the Common Shares
issuable upon conversion of the Preferred Shares are not capable of being sold
on an Approved Market (as defined in the Put and Call Agreement) pursuant to an
effective registration statement and deliverable prospectus.
(y) Notwithstanding the preceding subsection (i)(x), no holder
of Preferred Shares shall be obligated to convert any Preferred Shares held by
such holder on a Mandatory Conversion Date unless and until each of the
following conditions has been satisfied or exists, each of which shall be a
condition precedent to any such forced conversion:
(A) no material default or breach exists which has not been
cured, and no event shall have occurred which constitutes (or would constitute
with notice or the passage of time or both) a material default or breach of the
Put and Call Agreement, the Registration Rights Agreement, or this Certificate
of Designations, which has not been cured;
(B) none of the events described in clauses (i) through (iv)
of Section 2(b) of the Registration Rights Agreement shall have occurred and be
continuing;
10
<PAGE>
EXHIBIT 3.2
(C) the Registration Statement is effective and holders have
received unlegended certificates representing Common Shares with respect to all
conversions for which Conversion Notices have been given; and
(D) the Corporation and its subsidiaries on a consolidated
basis has assets with a net realizable fair market value exceeding its
liabilities and is able to pay all its debts as they become due in the ordinary
course of business, and the Corporation is not subject to any liquidation,
dissolution or winding up of its affairs.
(z) Notwithstanding, Section 5(i)(x) above, no holder's
Preferred Shares shall be subject to mandatory conversion to the extent such
mandatory conversion would result in the holder of Preferred Shares exceeding
the limitation contained in Section 5(j) below; provided that for purposes of
this Section 5(i)(z), beneficial ownership of shares of Common Stock acquired
other than through ownership of Preferred Shares or other preferred stock of the
Corporation and acquired after the date of the Put and Call Agreement shall be
disregarded. In such event, the Preferred Shares of such holder would be
converted in such amount until such limitation is reached and with respect to
the balance of such holder's Preferred Shares, the Mandatory Conversion Date
shall be moved to a date 90 days thereafter, subject to the provisions of
Section 5(i) applying to such balance.
Such forced conversion shall be subject to and governed by all
the provisions relating to voluntary conversion of the Preferred Shares
contained herein.
(j) Limitations on Holder's Right to Convert.
i. Notwithstanding anything to the contrary contained herein,
the number of shares of Common Stock that may be acquired by the holder upon
conversion pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially owned by
such holder (other than by virtue of the ownership of securities or rights to
acquire securities that have limitations on the holder's right to convert,
exercise or purchase similar to the limitation set forth herein), together with
all shares of Common Stock deemed beneficially owned by the holder's
"affiliates" (as defined in Rule 144 of the Act) ("Aggregation Parties") that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Securities Exchange Act of 1934 as amended, exists, would exceed
9.99% of the total issued and outstanding shares of the Common Stock (the
"RESTRICTED OWNERSHIP PERCENTAGE"); provided that (w) each holder shall have the
right at any time and from time to time to reduce its Restricted Ownership
Percentage immediately upon notice to the Corporation and (x) each holder shall
have the right (subject to waiver) at any time and from time to time, to
increase its Restricted Ownership Percentage immediately in the event of the
announcement as pending or planned, of a transaction or event referred to in
Section 5(m) below.
11
<PAGE>
EXHIBIT 3.2
ii. Each time (a "COVENANT TIME") the holder or an Aggregation
Party makes a Triggering Acquisition (as defined below) of shares of Common
Stock (the "TRIGGERING SHARES"), the holder will be deemed to covenant that it
will not, during the balance of the day on which such Triggering Acquisition
occurs, and during the 61-day period beginning immediately after that day,
acquire additional shares of Common Stock pursuant to rights-to-acquire existing
at that Covenant Time, if the aggregate amount of such additional shares so
acquired (without reducing that amount by any dispositions) would exceed (x)
9.99% of the number of shares of Common Stock outstanding at that Covenant Time
(including the Triggering Shares) minus (y) the number of shares of Common Stock
actually owned by the holder at that Covenant Time (regardless of how or when
acquired, and including the Triggering Shares). A "TRIGGERING ACQUISITION" means
the giving of a Conversion Notice or any other acquisition of Common Stock by
the holder or an Aggregation Party; provided, however, that with respect to the
giving of such Conversion Notice, if the associated issuance of shares of Common
Stock does not occur, such event shall cease to be a Triggering Acquisition and
the related covenant under this paragraph shall terminate. At each Covenant
Time, the holder shall be deemed to waive any right it would otherwise have to
acquire shares of Common Stock to the extent that such acquisition would violate
any covenant given by the holder under this paragraph. Notwithstanding anything
to the contrary in the Transaction Documents, in the event of a conflict between
any covenant given under this paragraph and any obligation of the holder to
convert Preferred Shares pursuant to the Transaction Documents, the former shall
supersede the latter, and the latter shall be reduced accordingly. For the
avoidance of doubt:
(A) The covenant to be given pursuant to this paragraph will
be given at every Covenant Time and shall be calculated based on the
circumstances then in effect. The making of a covenant at one Covenant Time
shall not terminate or modify any prior covenants.
(B) The holder may therefore from time to time be subject to
multiple such covenants, each one having been made at a different Covenant Time,
and some possibly being more restrictive than others. The holder must comply
with all such covenants then in effect.
(k) CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The Corporation
shall promptly furnish or cause to be furnished to each holder a certificate
prepared by the Corporation setting forth any adjustments or readjustments of
the Conversion Price pursuant to this Section 5.
(l) SPECIFIC ENFORCEMENT. The Corporation agrees that irreparable
damage would occur in the event that any of the provisions of this Certificate
of Designations were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the holders of Preferred
Shares shall be entitled to specific performance, injunctive relief or other
equitable remedies to prevent or cure breaches of
12
<PAGE>
EXHIBIT 3.2
the provisions of this Certificate of Designations and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled under agreement, at law or in equity.
(m) MANDATORY REPURCHASE. Each holder shall have the unilateral
option and right to compel the Corporation to repurchase any or all of such
holder's Preferred Shares within 3 days of a written notice requiring such
repurchase, at a price per Preferred Share equal to 115% of the Liquidation
Preference then in effect if any of the following events involving the
Corporation shall have occurred:
i. A Change in Control Transaction (as defined below);
ii. A "going private" transaction under Rule 13e-3 promulgated
pursuant to the Exchange Act; or
iii. A tender offer by the Corporation under Rule 13e-4
promulgated pursuant to the Exchange Act.
A "Change in Control Transaction" will be deemed to exist if (i)
there occurs any consolidation or merger of the Corporation with or into any
other corporation or other entity or person (whether or not the Corporation is
the surviving corporation), or any other corporate reorganization or transaction
or series of related transactions in which in excess of 50% of the Corporation's
voting power is transferred through a merger, consolidation, tender offer or
similar transaction, (ii) any person (as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")), together with
its affiliates and associates (as such terms are defined in Rule 405 under the
Securities Act of 1933, as amended (the "Act")), beneficially owns or is deemed
to beneficially own (as described in Rule 13d-3 under the Exchange Act without
regard to the 60-day exercise period) in excess of 50% of the Corporation's
voting power, (iii) there is a replacement of more than one-half of the members
of the Corporation's Board of Directors which is not approved by those
individuals who are members of the Corporation's Board of Directors on the date
thereof, in one or a series of related transactions or (iv) a sale or transfer
of all or substantially all of the assets of the Corporation, determined on a
consolidated basis.
(n) MANDATORY REPURCHASE IN EVENT OF NON-COMPLIANCE WITH WARRANTS.
In the event that the Corporation (i) is not in compliance with its obligations
to deliver Common Shares pursuant to the terms of Warrants issued pursuant to
the Common Stock Investment Agreement, dated as of October 4, 1999 by and
between the Corporation and Manchester Securities Corp. ("Manchester") (the
"Warrants"), which Warrants are held by a holder of Preferred Shares or an
affiliate of such holder or (ii) repudiates or disavows such obligations, then
such holder of Preferred Shares shall have the unilateral option and right, in
addition to any other rights or remedies which such holder or Manchester may
have, all of which shall be cumulative, to compel the Corporation to
13
<PAGE>
EXHIBIT 3.2
repurchase any and all of such holder's Preferred Shares within 3 days of a
written notice requiring such repurchase, at a price per Preferred Share equal
to the greater of: (1) 125% of the Liquidation Preference per share then in
effect or (2) the Liquidation Preference per share divided by the Conversion
Price multiplied by the greater of the last closing price of the Common Shares
on the date a holder exercises its option pursuant to this provision to require
repurchase of Preferred Shares or the date on which the event triggering the
holder's remedies under this provision first occurred.
6. VOTING RIGHTS. In addition to all other requirements imposed by
Delaware law, and all other voting rights granted under the Corporation's
Certificate of Incorporation, the affirmative vote of two-thirds in interest of
the Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment, modification or repeal of this Certificate of Designations (whether
by merger, consolidation or otherwise) or for any merger, reclassification,
consolidation or reorganization,) or (ii) any amendment to the Certificate of
Incorporation or by-laws of the Corporation that may amend or change or
adversely affect any of the rights, preferences, or privileges of the Preferred
Shares, provided, however, that holders of Preferred Shares (other than the
investor under the Put and Call Agreement and its affiliates) who are affiliates
of the Corporation (and the Corporation itself) shall not participate in such
vote and the Preferred Shares of such holders shall be disregarded and deemed
not to be outstanding for purposes of such vote.
7. NOTICES. The Corporation shall distribute to the holders of Preferred
Shares copies of all notices, materials, annual and quarterly reports, proxy
statements, information statements and any other documents distributed generally
to the holders of shares of Common Stock of the Corporation, at such times and
by such method as such documents are distributed to such holders of such Common
Stock.
8. REPLACEMENT CERTIFICATES. The certificate(s) representing the Preferred
Shares held by any holder of Preferred Shares may be exchanged by such holder at
any time and from time to time for certificates with different denominations
representing an equal aggregate number of Preferred Shares, as reasonably
requested by such holder, upon surrendering the same. No service charge will be
made for such registration or transfer or exchange.
9. ATTORNEYS' FEES. In connection with enforcement by a holder of
Preferred Shares of any obligation of the Corporation hereunder, the prevailing
party shall be entitled to recovery of reasonable attorneys' fees and expenses
incurred.
10. NO REISSUANCE. No Preferred Shares acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued.
11. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Preferred Shares set forth in this Certificate of Designations (as this
Certificate of
14
<PAGE>
EXHIBIT 3.2
Designations may be amended from time to time) is invalid, unlawful or incapable
of being enforced by reason of any rule or law or public policy, all other
rights, preferences and limitations set forth in this Certificate of
Designations, which can be given effect without the invalid, unlawful or
unenforceable right, preference or limitation shall nevertheless remain in full
force and effect, and no right, preference or limitation herein set forth be
deemed dependent upon any such other right, preference or limitation unless so
expressed herein.
12. LIMITATIONS. Except as may otherwise be required by law and as are set
forth in the Put and Call Agreement and the Registration Rights Agreement, the
Preferred Shares shall not have any powers, preference or relative
participating, optional or other special rights other than those specifically
set forth in this Certificate of Designation (as may be amended from time to
time) or otherwise in the Certificate of Incorporation of the Corporation.
Signed on January 26, 2000
SECURE COMPUTING CORPORATION
By: /s/ Mary Budge
-------------------------------------
Name: Mary Budge
Title: Assistant Corporate Secretary
15
<PAGE>
EXHIBIT 3.2
EXHIBIT A
(To be Executed by Holder
in order to Convert Preferred Shares)
CONVERSION NOTICE
FOR
SERIES E 4% CUMULATIVE CONVERTIBLE PREFERRED STOCK
The undersigned, as a holder ("Holder") of shares of SERIES E 4% Cumulative
Convertible Preferred Stock ("Preferred Shares") of Secure Computing Corporation
(the "Corporation"), hereby irrevocably elects to convert _____________
Preferred Shares for shares ("Common Shares") of common stock, par value $0.01
per share (the "Common Stock"), of the Corporation according to the terms and
conditions of the Certificate of Designations for the Preferred Shares as of the
date written below. The undersigned hereby requests that share certificates for
the Common Shares to be issued to the undersigned pursuant to this Conversion
Notice be issued in the name of, and delivered to, the undersigned or its
designee as indicated below. No fee will be charged to the Holder of Preferred
Shares for any conversion. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Certificate of
Designations.
Conversion Date: __________________________
Conversion Information: NAME OF HOLDER:
By:
-------------------------------------
Print Name:
Print Title:
Print Address of Holder:
-----------------------------------------
-----------------------------------------
Issue Common Stock to:
------------------
at:
-------------------------------------
-----------------------------------------
Preferred Shares acquire through
-Put
-Call
IF COMMON SHARES ARE TO BE ISSUED TO A PERSON OTHER THAN HOLDER,
HOLDER'S SIGNATURE MUST BE GUARANTEED BELOW:
1
<PAGE>
EXHIBIT 3.2
SIGNATURE GUARANTEED BY:
THE COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED IS SET FORTH ON PAGE 2
OF THE CONVERSION NOTICE.
PAGE 1 OF CONVERSION NOTICE
2
<PAGE>
EXHIBIT 3.2
PAGE 2 TO CONVERSION NOTICE DATED FOR:
---------------------- ------------------
(CONVERSION DATE) (NAME OF HOLDER)
COMPUTATION OF NUMBER OF COMMON SHARES TO BE RECEIVED
Number of Preferred Shares converted: ____________ shares
Number of Preferred Shares converted x Liquidation $
Preference
TOTAL DOLLAR AMOUNT CONVERTED $
==============
CONVERSION PRICE $
Number of Common Shares = Total dollar amount converted =
----------------------------- --------------
Conversion Price
NUMBER OF COMMON SHARES =
If the conversion is not being settled by DTC, please issue and deliver _____
certificate(s) for Common Shares in the following amount(s):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If the Holder is receiving certificate(s) for Preferred Shares upon the
conversion, please issue and deliver _____ certificate(s) for Preferred Shares
in the following amounts:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
EXHIBIT 10.1
PREFERRED STOCK INVESTMENT AGREEMENT
PREFERRED STOCK INVESTMENT AGREEMENT ("AGREEMENT") dated as of December
17, 1999 between Secure Computing Corporation, a Delaware corporation (the
"COMPANY"), and Westgate International, L.P.(the "INVESTOR").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the Investor, and
the Investor wishes to purchase from the Company, an aggregate of 5,000 shares
of the Company's Series D Preferred Stock, liquidation preference $1,000 per
share (all of such shares being the"PREFERRED SHARES"), having the rights,
designations and preferences set forth in the Certificate of Designations (the
"CERTIFICATE") in the form of Exhibit 1.1A attached hereto, on the terms and
conditions set forth herein; and
WHEREAS, the Preferred Shares will be convertible into shares
("COMMON SHARES") of common stock, par value $0.01, of the Company ("COMMON
STOCK"), pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to such Common Shares, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investor substantially in the form of Exhibit 5.2(f) hereto
("REGISTRATION RIGHTS AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
Section 1.1 Issuance of Preferred Shares. Upon the following terms and
conditions, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, the number of Preferred Shares indicated next
to the Investor's name on Schedule I attached hereto.
(a) PURCHASE PRICE. The purchase price for the Preferred Shares to
be acquired by the Investor (the "PURCHASE PRICE") shall be the Purchase Price
set forth next to the Investor's name on Schedule I.
1
<PAGE>
EXHIBIT 10.1
(b) THE CLOSING.
(i) Subject to the fulfillment or waiver of the conditions set
forth in Article V hereof, the closing of the purchase and sale of the Preferred
Shares (the "CLOSING") shall take place at the offices of Kleinberg, Kaplan,
Wolff & Cohen, P.C. ("KKWC"), on or about December 17, 1999 or earlier if the
Investor so determine, or such other date as the Investor and the Company may
agree upon (the "CLOSING DATE").
(ii) On the Closing Date, the Company shall deliver to the
Investor stock certificates (with the number of and denomination of such
certificates requested by the Investor) representing the Preferred Shares
purchased hereunder by the Investor at the Closing registered in the name of the
Investor or its nominee. The delivery of payment by wire transfer to an account
designated by the Company by the Investor of the Purchase Price applicable to it
as set forth in Section 1.1 and Schedule I shall constitute a payment delivered
to the Company in satisfaction of the Investor's obligation to pay the Purchase
Price hereunder. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Closing.
Section 1.2 Additional Financing.
(a) At the option of the Investor, the Investor may purchase up to
an additional 2,500 Preferred Shares (the "ADDITIONAL PREFERRED SHARES") for a
purchase price equal to the aggregate Liquidation Preference (as defined in the
Certificate) of the shares purchased.
(b) This option may be exercised in whole or in part, from time to
time commencing with the Closing Date until the Mandatory Conversion Date of the
Preferred Shares acquired on the Closing Date. Upon delivery of a notice by the
Investor exercising its option hereunder, the Company shall be obligated to sell
and deliver to the Investor, and the Investor shall be obligated to purchase,
the Additional Preferred Shares specified in the option exercise notice. Closing
of such purchase and sale ("OPTION CLOSING") shall take place at the office of
KKWC within 3 business days of the delivery of the option exercise notice. At
the Closing, the Company shall deliver certificates evidencing the Additional
Preferred Shares being purchased against the payment of the purchase price
therefor.
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EXHIBIT 10.1
(c) For the avoidance of doubt:
(i) The Mandatory Conversion Date of the Additional Preferred
Shares shall be four (4) months after the Common Shares into which they are
convertible become registered pursuant to the Registration Rights Agreement.
(ii) The Fixed Price of the Additional Preferred Shares shall be
determined as if the Additional Preferred Shares had been issued on the Closing
Date, (i.e., shall be subject to all of the adjustments to the Fixed Price
applicable between the Closing Date to the date of issuance of the Additional
Preferred Shares).
(iii) The Registration Rights Agreement shall apply to the
Common Shares underlying the Additional Preferred Shares, MUTATIS MUTANDIS, with
the time periods for filing and effectiveness of the registration statement
covering such Common Shares running from the date of the Option Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor as of
the date hereof, on the Closing Date and on the date of any Option Closing:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any subsidiaries other than the subsidiaries listed on Schedule
2.1(a) attached hereto ("SUBSIDIARIES"). Except where specifically indicated to
the contrary, all references in this Agreement to subsidiaries shall be deemed
to refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company and its
subsidiaries, if any, and which is (either alone or together with all other
adverse effects) material to the Company and its Subsidiaries, if any, taken as
a whole, and any material adverse effect
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EXHIBIT 10.1
on the transactions contemplated under this Agreement, the Certificate and the
Registration Rights Agreement, or any other agreement or document contemplated
hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Certificate and the Registration Rights Agreement ("TRANSACTION DOCUMENTS") and
to issue the Preferred Shares and Additional Preferred Shares in accordance with
the terms hereof, (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including the issuance of the
Preferred Shares and Additional Preferred Shares and the resolutions contained
in the Certificate, have been duly authorized by all necessary corporate action,
and no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
this Agreement and the Registration Rights Agreement have been duly executed and
delivered by the Company, (iv) this Agreement, the Certificate and the
Registration Rights Agreement constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
(A) as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable federal or state securities laws
and (v) the Preferred Shares and Additional Preferred Shares have been duly
authorized and, upon issuance thereof and payment therefor in accordance with
the terms of this Agreement, the Preferred Shares and Additional Preferred
Shares will be validly issued, fully paid and non-assessable, free and clear of
any and all liens, claims and encumbrances.
(c) CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Common Stock, of which
as of the date hereof, 22,522,758 shares are issued and outstanding, 8,444,131
shares are issuable and reserved for issuance pursuant to the Company's stock
option and purchase plans and 1,841,744 shares are issuable and reserved for
issuance pursuant to securities exercisable or exchangeable for, or convertible
into, shares of Common Stock, and (ii) 2,000,000 shares of preferred stock, of
which as of the date hereof, (A) 16,000 shares were designated as Series C
Preferred Stock and no shares of Series C Preferred Stock were issued and
outstanding and (B) 7,500 shares were designated as Series D Preferred Stock,
none of such shares were issued, and all of such were reserved for issuance
hereunder. All of such outstanding shares have been, or upon issuance will be,
validly issued, fully paid and nonassessable. As of the date hereof, except as
contemplated by the Common Stock Investment Agreement (defined below) or as
disclosed in Schedule 2.1(c), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other
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<PAGE>
EXHIBIT 10.1
similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities, (iii) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its Subsidiaries, (iv) there
are no agreements or arrangements under which the Company or any of its
Subsidiaries is obligated to register the sale of any of their securities under
the Securities Act of 1933, as amended ("SECURITIES ACT" or "1933 ACT") (except
the Registration Rights Agreement and that certain registration rights
agreements entered into with Manchester Securities Corp. ("MANCHESTER") pursuant
to the Common Stock Investment Agreement with Manchester dated as of October 4,
1999 ("COMMON STOCK INVESTMENT AGREEMENT")), (v) there are no outstanding
securities of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Shares as described in this Agreement and (vii) the Company does not have
any stock appreciation rights or "phantom stock" plans or agreements or any
similar plan or agreement. The Company has furnished to the Investor true and
correct copies of the Company's Certificate of Incorporation, as amended and as
in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
(d) ISSUANCE OF SHARES. Upon issuance in accordance with this
Agreement and the Certificate, the Preferred Shares, Additional Preferred Shares
and Common Shares will be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof.
(e) NO CONFLICTS. Except as disclosed in Schedule 2.1(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Certificate of Incorporation,
any Certificate of Designations, Preferences and Rights of any outstanding
series of preferred stock of the Company or the By-laws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
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<PAGE>
EXHIBIT 10.1
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
the rules and regulations of the Nasdaq National Market ("PRINCIPAL MARKET") or
principal securities exchange or trading market on which the Common Stock is
traded or listed) applicable to the Company or any of its Subsidiaries or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected. Except as disclosed in Schedule 2.1(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, (x) its
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, (y) any material contract,
agreement, mortgage, indebtedness, indenture, instrument, or (z) any judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, the non-compliance with which (in the case of (z) only), would
be material to the Company or interfere with the performance of its obligations
under the Transaction Documents. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 2.1(e), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company complies with and is not in
violation of the listing requirements of the Principal Market as in effect on
the date hereof and on each of the Closing Dates and is not aware of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1997,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Investor
or its representatives true and complete copies of any SEC Documents that were
not filed electronically via EDGAR. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the
6
<PAGE>
EXHIBIT 10.1
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents, including,
without limitation, information referred to in Section 2.2(b) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Investor with any material, nonpublic
information which was not publicly disclosed prior to the date hereof.
(g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule
2.1(g) or the SEC Documents filed at least five (5) days prior to the date
hereof, since December 31, 1998 there has been no adverse change or adverse
development in the business, properties, assets, operations, financial
condition, prospects, liabilities or results of operations of the Company or its
Subsidiaries which has had or, to the knowledge of the Company or its
Subsidiaries, is reasonably likely to have a Material Adverse Effect. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
(i) except as set forth in Schedule 2.1(h) and (ii) except which individually
and in the aggregate, respectively, would be reasonably likely to result in
liability to the Company in excess of $50,000 and $100,000, respectively.
(i) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar
7
<PAGE>
EXHIBIT 10.1
capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby, and any advice given by the Investor or any of
its respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investor's purchase of the Preferred Shares. The Company
further represents to the Investor that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(j) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly disclosed.
(k) NO INSIDE INFORMATION. The Company has not provided and, the
Company shall not provide, any Investor with any non-public information.
(l) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of
Preferred Shares to the Investor to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
the Principal Market, nor will the Company or any of its Subsidiaries take any
action or steps that would cause the offering of the Shares to be integrated
with other offerings.
(m) EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened, the effect
of which would be reasonably likely to result in a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement. The Company and its Subsidiaries believe that relations
between the Company and its Subsidiaries and their respective employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) whose
departure would be adverse to the Company has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company.
(n) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule
8
<PAGE>
EXHIBIT 10.1
2.1(n), none of the Company's trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two (2) years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademark, trade name rights, patents, patent
rights, copyrights, inventions, licenses, service names, service marks, service
mark registrations, trade secret or other similar rights of others, or of any
such development of similar or identical trade secrets or technical information
by others and, except as set forth on Schedule 2.1(n), there is no claim, action
or proceeding being made or brought against, or to the Company's knowledge,
being threatened against, the Company or its Subsidiaries regarding trademarks,
trade name rights, patents, patent rights, inventions, copyrights, licenses,
service names, service marks, service mark registrations, trade secrets or other
infringement. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
(o) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS", (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
(p) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 2.1(p) or such as do not
materially and adversely affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(q) INSURANCE. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the
9
<PAGE>
EXHIBIT 10.1
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries taken as a whole.
(r) REGULATORY PERMITS. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities, necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(s) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(t) FOREIGN CORRUPT PRACTICES ACT. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(u) TAX STATUS. Except as set forth on Schedule 2.1(u), the Company
and each of its Subsidiaries has made or filed all United States federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
10
<PAGE>
EXHIBIT 10.1
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the Company is not aware of any basis
for any such claim.
(v) CERTAIN TRANSACTIONS. Except as set forth on Schedule 2.1(v) and
in the SEC Documents filed on EDGAR at least five (5) Trading Days prior to the
date hereof and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 2.1(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director or any such employee has a substantial interest or is an
officer, director, trustee or partner.
(w) DILUTIVE EFFECT. The Company understands and acknowledges that
the number of Shares issuable upon conversion of Preferred Shares and Additional
Preferred Shares purchased pursuant to this Agreement will increase in certain
circumstances. The Company further acknowledges that, subject to such
limitations as are expressly set forth in the Transaction Documents, its
obligation (x) to issue Additional Preferred Shares on exercise of the option
contained in Section 1.2 hereof, and (y) to issue Conversion Shares upon
conversion of Preferred Shares and Additional Preferred Shares purchased
pursuant to this Agreement, is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable Section 203 of the Delaware General Corporation Law, or any other
similar anti-takeover provision contained in the Company's Certificate of
Incorporation or otherwise which is or could become applicable to the Investor
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Shares and the Investor's
ownership of the Shares.
(y) RIGHTS PLAN. Except for the Amended and Restated Share Rights
Agreement dated July 24, 1997, as amended through the date of this Agreement,
neither the Company nor any of its Subsidiaries has adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company. The Company confirms that no
provision of such
11
<PAGE>
EXHIBIT 10.1
plan will, under any present or future circumstances, delay, prevent or
interfere with the performance of any of the Company's obligations under the
Transaction Documents and such plan will not be "triggered" by such performance.
(z) MARKET CAPITALIZATION. As of the date hereof, the aggregate
market value of the voting common equity of the Company held by non-affiliates
of the Company is greater than $100 million and on the date of the filing of the
Registration Statement, such aggregate market value shall be greater than $100
million as of a date within 60 days prior to such filing.
(aa) OBLIGATIONS ABSOLUTE. Each of the Company and the Investor
agrees that, subject only to the conditions, qualifications and exceptions (if
any) specifically set forth in the Transaction Documents, its obligations under
the Transaction Documents are unconditional and absolute. Except to the extent
(if any) specifically set forth in the Transaction Documents, each party's
obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.
(bb) ISSUANCE OF COMMON SHARES. The Common Shares are duly
authorized and reserved for issuance and, upon conversion of Preferred Shares or
Additional Preferred Shares in accordance with the Certificate (including
receipt by the Company of the Preferred Shares or Additional Preferred Shares
being converted or a lost stock affidavit), such Common Shares will be validly
issued, fully paid and non-assessable, free and clear of any and all liens,
claims and encumbrances, and entitled to be traded on the Principal Market or
the New York Stock Exchange or the American Stock Exchange, or the Nasdaq small
cap market (collectively with the Principal Market, the "APPROVED MARKETS"), and
the holders of such Common Shares shall be entitled to all rights and
preferences accorded to a holder of Common Stock. As of the date of this
Agreement, the outstanding shares of Common Stock are currently listed on the
Principal Market.
(cc) FORM S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 (as in effect on the date of this Agreement) under the
1933 Act and rules promulgated thereunder, and Form S-3 (as in effect on the
date of this Agreement) is permitted to be used for the transactions
contemplated hereby under the 1933 Act and rules promulgated thereunder.
Section 2.2 Representations and Warranties of the Investor. The Investor,
hereby makes the following representations and warranties to the Company as of
the date hereof, on the Closing Date and on the date of any Option Closing:
(a) ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. The Investor
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D under the 1933 Act. The Investor has such knowledge and experience in
financial and business
12
<PAGE>
EXHIBIT 10.1
matters that it is capable of evaluating the merits and risks of investment in
the Preferred Shares, Additional Preferred Shares and Common Shares.
(b) INFORMATION. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company which have been requested and materials relating to the offer and
sale of the Preferred Shares, the Additional Preferred Shares and Common Shares
which have been requested by the Investor. The Investor and its advisors, if
any, have been afforded the opportunity to ask questions of the Company. The
Investor has not received any material, non-public information concerning the
Company. Neither such inquiries nor any other due diligence investigations
conducted by the Investor or its advisors, if any, or its representatives shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in Section 2.1 above. The Investor
understands that its investment in the Preferred Shares, Additional Preferred
Shares and Common Shares involves a high degree of risk. The Investor has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Preferred
Shares, Additional Preferred Shares and Common Shares.
(c) NO GOVERNMENTAL REVIEW. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Preferred Shares,
Additional Preferred Shares and Common Shares or the fairness or suitability of
the investment in the Preferred Shares, Additional Preferred Shares and Common
Shares nor have such authorities passed upon or endorsed the merits of the
offering of the Preferred Shares, Additional Preferred Shares and Common Shares.
(d) LEGENDS. The Company shall issue certificates for the Preferred
Shares, Additional Preferred Shares and Common Shares to the Investor without
any legend except as described in Article VI below. The Investor covenants that,
in connection with any transfer of Common Shares by the Investor pursuant to the
registration statement contemplated by the Registration Rights Agreement, it
will comply with the applicable prospectus delivery requirements of the 1933
Act, provided that copies of a current prospectus relating to such effective
registration statement are or have been supplied to the Investor.
(e) AUTHORIZATION; ENFORCEMENT. This Agreement, and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Investor and is a valid and binding agreement of the Investor
enforceable against the Investor in accordance with their terms, subject as to
enforceability to general principles of equity and to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies. The Investor has the requisite corporate power and
authority to enter into and perform its obligations under this
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EXHIBIT 10.1
Agreement, the Registration Rights Agreement and each other agreement entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement.
(f) RESIDENCY. The Investor is a resident of the jurisdiction
indicated on Schedule 1.
(g) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of the certificate of incorporation, by-laws or
other documents of organization of the Investor.
(h) INVESTMENT REPRESENTATION. The Investor is purchasing the
Preferred Shares (and if applicable, Additional Preferred Shares) for its own
account and not with a view to distribution in violation of any securities laws.
The Investor has been advised and understands that neither the Preferred Shares,
Additional Preferred Shares nor the shares of Common Stock issuable upon
conversion thereof have been registered under the 1933 Act or under the "blue
sky" laws of any jurisdiction and may be resold only if registered pursuant to
the provisions of the 1933 Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law. The Investor has been advised and understands
that the Company in issuing the Preferred Shares and Additional Preferred Shares
is relying upon, among other things, the representations and warranties of the
Investor contained in this Section 2.2 in concluding that such issuance is a
"private offering" and is exempt from the registration provisions of the 1933
Act.
(i) RULE 144. The Investor understands that there is no public
trading market for the Preferred Shares and Additional Preferred Shares that
none is expected to develop, and that the Preferred Shares and Additional
Preferred Shares must be held indefinitely unless and until such Preferred
Shares, Additional Preferred Shares or Common Shares received upon conversion
thereof are registered under the 1933 Act or an exemption from registration is
available. The Investor has been advised or is aware of the provisions of Rule
144 promulgated under the 1933 Act.
(j) BROKERS. The Investor has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or the Investor relating to this Agreement or the
transactions contemplated hereby.
(k) RELIANCE BY THE COMPANY. The Investor understands that the
Preferred Shares and Additional Preferred Shares are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and that the Company is relying upon the truth
and accuracy of the representations, warranties, agreements, acknowledgments and
understandings of the Investor set forth
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EXHIBIT 10.1
herein in order to determine the applicability of such exemptions and the
suitability of the Investor to acquire the Preferred Shares and Additional
Preferred Shares.
ARTICLE III
COVENANTS
Section 3.1 Registration and Listing; Effective Registration. Until such
time as no Preferred Shares or Additional Preferred Shares are outstanding, the
Company will cause the Common Stock to continue at all times to be registered
under Sections 12(b) or (g) of the Exchange Act, will comply in all material
respects with its reporting and filing obligations under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and will not take any action or
file any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such reporting and filing obligations. Until
such time as no Preferred Shares or Additional Preferred Shares are outstanding,
the Company shall continue the listing or trading of the Common Stock on the
Principal or one of the other Approved Markets and comply in all material
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Approved Market on which the Common Stock is listed. The
Company shall cause the Common Shares to be listed on the Principal or one of
the other Approved Markets no later than the effectiveness of the registration
of the Common Shares under the Act, and shall continue such listing(s) on one of
the Approved Markets, for so long as any Preferred Shares or Additional
Preferred Shares are outstanding.
Section 3.2 Certificates on Conversion. Upon any conversion by the
Investor (or then holder of Preferred Shares or Additional Preferred Shares) of
the Preferred Shares or Additional Preferred Shares pursuant to the Certificate,
the Company shall issue and deliver to the Investor (or holder) within three (3)
trading days of the conversion date a new certificate or certificates for the
number of Preferred Shares or Additional Preferred Shares which the Investor (or
holder) has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the denominations of such new certificate(s) designated by the Investor or
holder).
Section 3.3 Replacement Certificates. The certificate(s) representing the
Preferred Shares or Additional Preferred Shares held by any Investor (or then
holder) may be exchanged by the Investor (or such holder) at any time and from
time to time for certificates with different denominations representing an equal
aggregate number of Preferred Shares or Additional Preferred Shares, as
requested by the Investor (or such holder) upon surrendering the same. No
service charge will be made for such registration or transfer or exchange.
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EXHIBIT 10.1
Section 3.4 Securities Compliance. The Company shall notify the SEC and
the Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate and the Registration Rights
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Preferred Shares or Additional Preferred Shares hereunder
and the Common Shares issuable upon conversion thereof.
Section 3.5 Notices. The Company agrees to provide all holders of
Preferred Shares or Additional Preferred Shares with copies of all notices and
information, including without limitation notices and proxy statements in
connection with any meetings, that are provided to the holders of shares of
Common Stock, contemporaneously with the delivery of such notices or information
to such Common Stock holders.
Section 3.6 Use of Proceeds. The Company agrees that the net proceeds
received by the Company from the sale of the Preferred Shares and Additional
Preferred Shares hereunder shall be used for legally permitted corporate
purposes.
Section 3.7 Reservation of Additional Preferred Shares; Stock Issuable
Upon Conversion.
(a) The Company shall reserve all authorized but unissued Series D
Preferred Stock for issuance to the Investor pursuant to the terms of this
Agreement.
(b) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares and Additional Preferred
Shares, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all Preferred Shares and Additional
Preferred Shares, and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
the then Preferred Shares (whether then outstanding or issuable pursuant to
Section 1.2 above), the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including without limitation engaging in best efforts to obtain the
requisite shareholder approval. Without in any way limiting the foregoing, the
Company agrees to reserve and at all times keep available solely for purposes of
conversion of Preferred Shares and Additional Preferred Shares, such number of
authorized but unissued shares of Common Stock that is at least equal to 200% of
the number of Common Shares issuable upon conversion of all Preferred Shares and
Additional Preferred Shares (computed as if all Additional Preferred Shares were
then issued). If at any time the number of authorized but unissued shares of
Common Stock is not sufficient to effect the conversion, up to the Maximum
Common Stock Issuance (as defined in Section 3.16 below), of all the then
outstanding Preferred
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EXHIBIT 10.1
Shares, the Investor shall be entitled to, INTER ALIA, the redemption rights
provided in the Registration Rights Agreement.
Section 3.8 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article V of this Agreement.
Section 3.9 Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Preferred Shares and Common Shares, as required under
Regulation D and to provide a copy thereof to the Investor promptly after such
filing. The Company shall, on or before the Closing Date, take such action as
the Company shall have reasonably determined is necessary to qualify the
Preferred Shares and Common Shares for sale to the Investor under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Investor on or prior to the Closing Date; provided,
however, that the Company shall not be required in connection therewith to
register or qualify as a foreign corporation in any jurisdiction where it is not
now so qualified or to take any action that would subject it to service of
process in suits or taxation, in each case, in any jurisdiction where it is not
now so subject.
Section 3.10 Materiality. The Company, after consultation with its outside
counsel, has determined that: (i) the execution, delivery and performance of the
Transaction documents (including, without limitation, the purchase of any
Additional Preferred Shares by the Investor) (the "Transaction Information") do
not constitute "material information" for purposes of the 1933 Act, the 1934 Act
or the rules of any self regulatory organization or market on which the Common
Stock is traded; and (ii) the Company is not required pursuant to applicable
law, or the rules of any self-regulatory organization or market on which the
Common Stock is traded, to issue any press release or make any other public
disclosure (other than in periodic reports required by the 1934 Act) disclosing
any of the Transaction Information. Insofar as the Company has concluded that
the Transaction Information is not material, the Company acknowledges that any
trading by the Investor in the Company's securities, while in possession of the
Transaction Information will not, by virtue of such possession: (1) violate any
duty of the Investor to the Company; or (2) constitute misappropriation of
information from the Company.
Section 3.11 Shareholder Rights Plan. None of the acquisitions of
Preferred Shares, Additional Preferred Shares or Common Shares nor the deemed
beneficial ownership of shares of Common Stock prior to, or the acquisition of
such shares pursuant to, the conversion of Preferred shares will in any event
under any circumstances trigger the poison pill provisions of any stockholders'
rights or similar agreements, or a substantially similar occurrence under any
successor or similar plan.
Section 3.12 Future Issuances of Preferred Shares. For so long as any
outstanding Preferred Shares are held by the Investor or Additional Preferred
Shares are issueable to
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EXHIBIT 10.1
the Investor upon exercise of the option under Section 1.2 above, the Company
shall not, without the prior written consent of the Investor, issue any
Preferred Shares or Additional Preferred Shares to any persons other than the
Investor.
Section 3.13 Financial Information. The Company agrees to send the
following to the Investor for so long as any Preferred Shares or Additional
Preferred Shares are outstanding: (i) on the same day as the release thereof,
facsimile or e-mail copies of all press releases issued by the Company or any of
its Subsidiaries; and (ii) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders.
Section 3.14 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 3.15 Restrictions On Short Sales. So long as the Investor owns
Preferred Shares or Additional Preferred Shares, the Investor will not sell
short the Company's Common Stock if as a result of such sale the Investor's net
short position in the Company's Common Stock would exceed the Investor's good
faith estimate of the amount of Common Shares that the Investor then has the
right to acquire pursuant to conversion of any Preferred Shares owned by the
Investor or Additional Preferred Shares owned or issuable to the Investor upon
exercise of the option contained in Section 1.2 above (or would have such right
to acquire but for the limitations contained in Section 5(j) in the Certificate)
or pursuant to the exercise of the warrants issued pursuant to the Common Stock
Investment Agreement held by the Investor or any affiliate of the Investor.
Section 3.16 Overall Limit on Common Stock Issuable. Notwithstanding
anything contained herein to the contrary, the number of Common Shares issuable
by the Company and acquirable by the Investor hereunder pursuant to conversion
of the Preferred Shares and Additional Preferred Shares shall not exceed
4,504,551 shares of Common Stock outstanding as of the date hereof, subject to
appropriate adjustment for stock splits, stock dividends, combinations or other
similar recapitalization affecting the Common Stock (the "MAXIMUM COMMON STOCK
ISSUANCE"), unless the issuance of shares hereunder in excess of the Maximum
Common Stock Issuance shall first be approved by the Company's shareholders in
accordance with applicable law and the By-laws and Articles of Incorporation of
the Company. Without limiting the generality of the foregoing, such
shareholders' approval must duly authorize the issuance by the Company of shares
of Common Stock totaling 4,504,551 or more of the shares of Common Stock
outstanding on the date hereof. The parties understand and agree that the
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EXHIBIT 10.1
Company's failure to seek or obtain such shareholder approval shall in no way
adversely affect the validity and due authorization of the issuance and sale of
Preferred Shares or Additional Preferred Shares hereunder, and that such
approval pertains only to the applicability of the Maximum Common Stock Issuance
limitation provided in this Section.
ARTICLE IV
TRANSFER AGENT INSTRUCTIONS
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of the Investor or its respective nominee(s), for the Common Shares in
such amounts as specified from time to time by the Investor to the Company upon
delivery of a conversion notice (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
The Company warrants that no instruction relating to the Common Shares other
than the Irrevocable Transfer Agent Instructions referred to in this Article IV
will be given by the Company to its transfer agent and that the Common Shares
shall be freely transferable on the books and records of the Company as
contemplated by Article VI below when the legend referred to therein may be
removed. Nothing in this Article IV shall affect in any way the Investor's
obligations and agreements set forth in Section 2.2(d) to comply with all
applicable prospectus delivery requirements, if any, upon resale of the Common
Shares. The Company shall instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Investor
and without any restrictive legends. The Company acknowledges that a breach by
it of its obligations hereunder will cause irreparable harm to the Investor by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of the provisions of this Section,
that the Investor shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
ARTICLE V
CONDITIONS TO CLOSINGS
Section 5.1 Conditions Precedent to the Obligation of the Company to Sell
the Preferred Shares. The obligation hereunder of the Company to issue and/or
sell the
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EXHIBIT 10.1
Preferred Shares to the Investor at the Closing and to issue and/or sell the
Additional Preferred Shares at an Option Closing is subject to the satisfaction,
at or before the Closing, or Option Closing, as the case may be, of each of the
applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investor will be true and correct in all
material respects as of the date when made and as of the Closing Date, or date
of the Option Closing, as the case may be, as though made at that time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing, or Option Closing, as the
case may be, including payment of the purchase price set forth on Schedule I
hereto in the case of the Closing, and payment of the applicable consideration,
in the case of an Option Closing.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate.
(d) CERTIFICATE. The Investor shall have delivered a certificate to
the Company certifying that the representations and warranties of the Investor
contained in Section 2.2 are true and correct in all material respects as of the
Closing Date in the case of the Closing, and as of the date of the Option
Closing, in the case of an Option Closing.
Section 5.2 Conditions Precedent to the Obligation of the Investor to
Purchase the Preferred Shares. The obligation hereunder of the Investor to
acquire and pay for the Preferred Shares at the Closing is subject to the
satisfaction, at or before the Closing, of each of the applicable conditions set
forth below. These conditions are for the Investor's benefit and may be waived
by the Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties as of an earlier
date, which shall be true and correct in all material respects as of such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing, including, without limitation, delivery
of certificates representing the Preferred Shares issued to Investor.
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EXHIBIT 10.1
(c) NASDAQ TRADING. From the date hereof to the Closing Date,
trading in the Company's Common Stock shall not have been suspended by the SEC
and trading in securities generally as reported by the Principal Market (or
other Approved Market) shall not have been suspended or limited, and the Common
Stock shall be listed on the Principal Market or another Approved Market.
(d) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement or the Registration Rights Agreement or the Certificate. The NASD
shall not have objected or indicated that it may object to the consummation of
any of the transactions contemplated by this Agreement.
(e) OPINION OF COUNSEL. At the Closing, the Investor shall have
received an opinion of counsel to the Company in the form attached hereto as
Exhibit 5.2(e) and such other opinions, certificates and documents as the
Investor or their counsel shall reasonably require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the Investor
shall have executed and delivered the Registration Rights Agreement in the form
and substance of Exhibit 5.2(f) attached hereto.
(g) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Investor a certificate in form and substance satisfactory to the Investor and
the Investor's Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, incumbency of signing officers, and the
true, correct and complete nature of the Certificate of Incorporation, By-Laws,
good standing and authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted for filing
by the Secretary of State of the State of Delaware and a stamped copy thereof
shall have been provided to the Investor's Counsel.
(i) MISCELLANEOUS. The Company shall have delivered to the Investor
such other documents relating to the transactions contemplated by this Agreement
or the Investor or its counsel may reasonable request.
Section 5.3 Closing Deliveries.
(a) On the Closing Date, the Company shall deliver to the Investor:
(i) Certificates representing the Preferred Shares issued to
Investors;
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EXHIBIT 10.1
(ii) A stamped copy of the filed Certificate;
(iii) The certificate referred to in Section 5.2(g) above;
(iv) The executed Registration Rights Agreement;
(v) The opinion of counsel referred to in Section 5.2(e) above.
(b) On the Closing Date, the Investor shall deliver to the Company:
(i) The Purchase Price set forth on Schedule I hereto;
(ii) The executed Registration Rights Agreement; and
(iii) The certificate referred to in Section 5.1(d) above.
Section 5.4 Conditions Precedent to the Obligation of the Investor to
Purchase the Additional Preferred Shares. The obligation of the Investor to
acquire and pay for the Additional Preferred Shares at an Option Closing is
subject to the satisfaction, at or before each Option Closing, of each of the
applicable conditions set forth below. The conditions are for the Investor's
benefit and may be waived by the Investor at any tine in its sole discretion.
(a) CONDITIONS IN SECTION 5.2. The Company shall have complied with
the conditions set forth in Section 5.2(a), (b), (c), (d), (e), (g) and (i) with
respect to the Option Closing, the date of such Option Closing and the closing
conditions for the Option Closing.
(b) COMPLIANCE WITH TRANSACTION DOCUMENTS. The Company shall be in
compliance with all of its obligations under the Transaction Documents.
Section 5.5 Closing Deliveries at Option Closing.
(a) On the date of each Option Closing, the Company shall deliver to
the Investor:
(i) certificates representing the Additional Preferred Shares
issued to the Investor;
(ii) the certificate referred to in Section 5.2 (g) above (as
modified by 5,4(a));
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EXHIBIT 10.1
(iii) the opinion of counsel referred to in Section 5.2(e) above
(as modified by Section 5.4(a)).
(b) On the date of each Option Closing, the Investor shall deliver
to the Company:
(i) The purchase price for the Additional Preferred Shares
(determined by multiplying the number of Additional Preferred Shares purchased
by the Liquidation Preference (as deferred in the Certificate) per share; and
(ii) the certificate referred to in Section 5.1(d) above.
ARTICLE VI
LEGEND AND STOCK
Upon payment therefor as provided in this Agreement, the Company
will issue one or more certificates representing the Preferred Shares and
Additional Preferred Shares in the name the Investor or its designees and in
such denominations to be specified by the Investor prior to (or from time to
time subsequent to) Closing or Option Closing. Each certificate representing the
Preferred Shares or Additional Preferred Shares and any Common Shares issued
upon conversion thereof, prior to such Common Shares being registered under the
1933 Act for resale or available for resale under Rule 144 under the 1933 Act,
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares or Additional
Preferred Shares without the legend set forth above at such time as (i) the
holder thereof is permitted to dispose of such Preferred Shares or Additional
Preferred Shares and/or Common Shares issuable upon conversion thereof pursuant
to Rule 144 under the Act, or (ii) such Preferred Shares are sold to a purchaser
or purchasers who (in the opinion of counsel to the seller or such purchaser(s),
in form and substance reasonably satisfactory to the Company and its counsel)
are able to dispose of such shares publicly without registration under the Act.
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EXHIBIT 10.1
Prior to the Registration Statement (as defined in the
Registration Rights Agreement) being declared effective, any Common Shares
issued pursuant to conversion of Preferred Shares or Additional Preferred Shares
shall bear a legend in the same form as the legend indicated above; provided
that such legend shall be removed from the Common Shares and the Company shall
issue new certificates without such legend if (i) the holder thereof is
permitted to dispose of such Common Shares pursuant to Rule 144 under the 1933
Act, (ii) such Common Shares are registered for resale under the 1933 Act, or
(iii) such Common Shares are sold to a purchaser or purchasers who (in the
opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to the Company and it counsel) are able to dispose of
such shares publicly without registration under the 1933 Act. Upon such
Registration Statement becoming effective, the Company agrees to promptly, but
no later than three (3) business days thereafter, issue new certificates
representing such Common Shares without such legend. Any Common Shares issued
after the Registration Statement has become effective shall be free and clear of
any legends, transfer restrictions and stop orders. Notwithstanding the removal
of such legend, the Investor agrees to sell the Common Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to the Investor by
the Company) or in accordance with an exemption from the registration
requirements of the 1933 Act.
Nothing herein shall limit the right of any holder to pledge
these securities pursuant to a bona fide margin account or lending arrangement
entered into in compliance with law, including applicable securities laws.
ARTICLE VII
TERMINATION
Section 7.1 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
Section 7.2 Other Termination. This Agreement may be terminated by action
of the Board of Directors of the Company or by the Investor at any time if the
Closing shall not have been consummated by the fifth business day following the
date of this Agreement; provided, however, that the party (or parties) prepared
to close shall retain its (or their) right to sue for any breach by the other
party (or parties).
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EXHIBIT 10.1
ARTICLE VIII
INDEMNIFICATION
In consideration of the Investor's execution and delivery of the this
Agreement and the Registration Rights Agreement and acquiring the Preferred
Shares hereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless the Investor and all of its partners, officers, directors, employees,
members and direct or indirect investors and any of the foregoing person's
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "INDEMNITEES") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate or document contemplated hereby or thereby, (b) any breach
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party and arising out of or resulting from (i) the
execution, delivery, performance, breach by the Company or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares or Additional Preferred Shares as the Investor in the Company
and (d) the enforcement of this Section. Notwithstanding the foregoing,
Indemnified Liabilities shall not include any liability of any Indemnitee
arising solely out of such Indemnitee's willful misconduct or fraudulent
action(s). To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Article VIII shall be the same as those set forth in Section 6 (other than
Section 6(b)) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and
Company's right to assume the defense of claims.
25
<PAGE>
EXHIBIT 10.1
ARTICLE IX
GOVERNING LAW, MISCELLANEOUS.
Section 9.1 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 9.2 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
26
<PAGE>
EXHIBIT 10.1
Section 9.3 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 9.4 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 9.5 Entire Agreement; Amendments; Waivers.
(a) This Agreement supersedes all other prior oral or written
agreements between the Investor, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(b) The Investor may at any time elect, by notice to the Company, to
waive (whether permanently or temporarily, and subject to such conditions, if
any, as the Investor may specify in such notice) any of its rights under any of
the Transaction Documents to acquire shares of Common Stock from the Company, in
which event such waiver shall be binding against the Investor in accordance with
its terms; provided, however, that the voluntary waiver contemplated by this
sentence may not reduce the Investor's obligations to the Company under the
Transaction Documents.
Section 9.6 Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery or (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Secure Computing Corporation
601 Campus Drive South, Suite 7
New Brighton, MN 55112
Telephone: (651) 628-6221
Facsimile: (651) 628-2714
Attention: Ms. Mary Budge and
27
<PAGE>
EXHIBIT 10.1
Secure Computing Corporation
One Almaden Boulevard, Suite 400
San Jose, California 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Michael Anderegg
With a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, California 94025
Telephone: (650) 234-4200
Facsimile: (650) 234-4299
Attention: Kyle Guse
If to the Transfer Agent:
NorWest Shareowner Services
161 North Concord Exchange Street
South St. Paul, MN 55075
Telephone: (651) 450-4187
Facsimile: (651) 450-4078
Attention: Transfer Agent
If to the Investor:
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Mark Brodsky and Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz and Christopher P. Davis
Each party shall provide five (5) days prior written notice to the other
party of any change in address, telephone number or facsimile number. Written
confirmation of
28
<PAGE>
EXHIBIT 10.1
receipt (A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a nationally
recognized overnight delivery service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
Section 9.7 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any Permitted Assignee (as
defined below). The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor,
including by merger or consolidation. The Investor may assign some or all of its
rights hereunder to an affiliate or associate of the Investor or an entity or
fund which has the same principal investment adviser as the Investor, without
the consent of the Company, and to others, with the written consent of the
Company (in each case, a "PERMITTED ASSIGNEE"); provided, however, that any such
assignment shall not release the Investor from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Investor shall be entitled to pledge
the Preferred Shares, Additional Preferred Shares or Common Shares in connection
with a bona fide margin account.
Section 9.8 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 9.9 Survival. The representations, warranties and agreements of
the Company and the Investor contained in the Agreement shall survive each of
the Closing and Option Closings.
Section 9.10 Publicity. The Company and the Investor shall have the right
to approve before issuance any press releases or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of the Investor, to
make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although the
Investor shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release and shall be provided
with a copy thereof).
Section 9.11 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may
29
<PAGE>
EXHIBIT 10.1
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
Section 9.12 Placement Agent. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Shares other than Rochon Capital, whose fees
will be paid exclusively by the Company. The Company and the Investor shall each
be responsible for the payment of any fees or commissions of placement agents or
brokers engaged, directly or indirectly, by the Company or the Investor,
respectively, in connection with the purchase of the Shares by the Investor. The
Company and the Investor shall pay, and hold the other party harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
Section 9.13 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 9.14 Remedies. The Investor and each Permitted Assignee shall have
all rights and remedies set forth in this Agreement and the Registration Rights
Agreement and all rights and remedies which such holders have been granted at
any time under any other agreement or contract and all of the rights which such
holders have under any law. Any person having any rights under any provision of
this Agreement shall be entitled to enforce such rights specifically (without
posting a bond or other security), to recover damages by reason of any breach of
any provision of this Agreement and to exercise all other rights granted by law.
The Investor and each Permitted Assignee without prejudice may withdraw, revoke
or suspend its pursuit of any remedy at any time prior to its complete recovery
as a result of such remedy.
Section 9.15 Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investor hereunder or the Registration Rights
Agreement or the Investor enforces or exercises its rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
Section 9.16 Days. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
30
<PAGE>
EXHIBIT 10.1
Section 9.17 Recission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the Investor
in its sole discretion may rescind or withdraw from time to time any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
* * * * *
[SIGNATURE PAGE FOLLOWS]
31
<PAGE>
EXHIBIT 10.1
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Investment Agreement to be duly executed as of the date and year first above
written.
COMPANY: INVESTOR:
SECURE COMPUTING CORPORATION WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By: /s/ John McNulty By: /s/ Elliot Greenberg
---------------------------------- ----------------------------------
Name: John McNulty Name: Elliot Greenberg
Title: Chief Executive Officer Title: Vice President
32
<PAGE>
EXHIBIT 10.1
LIST OF SCHEDULES
- -----------------
Schedule 2.1(a) Organization and Qualification
Schedule 2.1(c) Capitalization
Schedule 2.1(e) No Conflicts
Schedule 2.1(g) Absence of Certain Changes
Schedule 2.1(h) Absence of Litigation
Schedule 2.1(n) Intellectual Property Rights
Schedule 2.1(p) Title
Schedule 2.1(u) Tax Status
Schedule 2.1(v) Certain Transactions
LIST OF EXHIBITS
- ----------------
EXHIBIT A Registration Rights Agreement
EXHIBIT B Officers' Certificate
EXHIBIT C Opinion of Counsel
33
<PAGE>
EXHIBIT 10.1
SCHEDULE I
NUMBER OF PURCHASE
INVESTOR RESIDENCE PREFERRED SHARES PRICE
-------- --------- ---------------- -----
Westgate International, L.P. Cayman Islands, B.W.I. 5,000 $5,000,000
34
EXHIBIT 10.2
PUT AND CALL AGREEMENT
PUT AND CALL AGREEMENT ("AGREEMENT") dated as of January 26, 2000,
between SECURE COMPUTING CORPORATION, a Delaware Corporation (the "Company") and
WESTGATE INTERNATIONAL, L.P. (the "INVESTOR").
W I T N E S S E T H
WHEREAS, the Company and the Investor desire that, subject to the
terms and provisions of this Agreement, the Investor may purchase up to 17,500
shares of the Company's Series E Preferred Stock, liquidation preference $1,000
per share (all such shares being referred to as "PREFERRED SHARES"), having the
rights, designations, and preferences set forth in the Certificate of
Designation (the "CERTIFICATE") in the form of Exhibit 1.1A attached hereto and
filed on the date hereof, on the terms and conditions set forth therein, which
Preferred Shares shall be issuable in two tranches (each a "TRANCHE"), for an
aggregate consideration of $1,000 per share, pursuant to either the Company's
options to sell Preferred Shares to the Investor set forth in this Agreement
(each a "PUT") or the Investor's options to purchase Preferred Shares from the
Company set forth in this Agreement (each a "CALL"); and
WHEREAS, the Preferred Shares will be convertible into shares
("COMMON SHARES") of common stock, par value $0.01, of the Company ("COMMON
STOCK"), pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to such Common Shares, pursuant to the terms of
that certain Registration Rights Agreement to be entered into between the
Company and the Investor substantially in the form of Exhibit 6.2(f) hereto
("REGISTRATION RIGHTS AGREEMENT") which is being executed and delivered
concurrently with this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
COMPANY'S PUT RIGHTS
Section 1.01 Company's First Put.
(a) At any time during the period commencing on the fifth Trading
Day (as defined below) following the effectiveness of the registration statement
(the "SERIES D REGISTRATION STATEMENT") covering the resale by the Investor of
Common Stock issued
1
<PAGE>
EXHIBIT 10.2
upon conversion of the Company's Series D Preferred Stock ("SERIES D PREFERRED
STOCK") and ending at the close of business on April 1, 2000 (the "First Put
Period"), the Company shall have the option to sell to the Investor all, but not
less than all, of a Tranche consisting of 8,750 Preferred Shares, subject to
reduction set forth in paragraph (d) below ("TRANCHE A"), subject to the
provision of paragraph (b) below, for an aggregate consideration of $1,000 per
Preferred Share (the "FIRST PUT"); provided that the Investor has not exercised
the First Call (as defined below).
(b) The exercise of the First Put by the Company is subject to the
fulfillment, on the date of its exercise, of the following conditions, which
conditions may be waived by the Investor, in whole or in part, at its sole
discretion:
(i) The Company shall be in compliance with its obligations under this
Agreement, the Certificate and the Registration Rights Agreement (the
"TRANSACTION DOCUMENTS");
(ii) The Company shall be in compliance with its obligations under the
Certificate relating to the Series D Preferred Stock and the Investment
Agreement and Registration Rights Agreement, each dated as of December
17, 1999, by and between the Company and the Investor (collectively, the
"SERIES D TRANSACTION DOCUMENTS");
(iii) The Company shall be in compliance with the Common Stock Investment
Agreement (other than Sections 4(d), 4(j) and 4(k) thereof) and
Registration Rights Agreement, each dated October 4, 1999 by and between
the Company and Manchester Securities Corp. ("Manchester") and the
Warrants issued to Manchester on such date (collectively, the "Equity
Line Documents");
(iv) No event which would entitle the Investor to resell to the Company any
Preferred Shares, any shares of Series D Preferred Stock, or any shares
of Common Stock issuable upon conversion thereof shall have occurred and
be continuing;
(v) No event which had or is likely to have, in the reasonable judgment of
the Investor, a Material Adverse Effect (as defined below) on the Company
or any of its subsidiaries shall have occurred since the date hereof;
(vi) The Standard & Poor's 500 Index shall not be 35% or more below its level
on the date hereof;
(vii) The closing bid price of the Company's Common Stock on the Principal
Market (as defined below) where it is traded shall not have dropped below
$5.00 (as may be adjusted for stock splits, stock dividends and stock
consolidation) at any time during the preceding 20 Trading Days;
2
<PAGE>
EXHIBIT 10.2
(viii) At all times during the period beginning on the date that the Company
delivers the related Put Notice (as defined below), and ending on and
including the date of the Put Notice, the Common Stock shall have been
listed on The American Stock Exchange, Inc. or The New York Stock
Exchange, Inc. or listed on the Nasdaq National Market or The Nasdaq
SmallCap Market (each a "PRINCIPAL MARKET") and shall not have been
suspended from trading thereon;
(ix) During the period beginning on the date of this Agreement and ending on
and including the applicable Put Notice, there shall not have occurred a
Major Transaction (as defined below) or the public announcement of a
pending Major Transaction which has not been abandoned or terminated;
(x) A number of shares of Common Stock equal to at least 200% of the
aggregate number of Common Shares issuable upon conversion of Preferred
Shares included in the Tranche to be purchased shall have been duly
authorized and reserved for issuance; and
(xi) The representations and warranties of the Company set forth in Section
3.1 shall be true and correct on the date of the Put Notice (as defined
below).
(c) The exercise of the First Put shall be effected by delivery of a
written notice by the Company to the Investor (the "FIRST PUT NOTICE"). Upon
delivery of the First Put Notice to the Investor, subject to the applicable
closing conditions set forth in Article VI herein, the Company shall be
obligated to sell to the Investor and the Investor shall be obligated to
purchase from the Company, the Preferred Shares included in Tranche A (the
"TRANCHE A SHARES"). Closing of such purchase and sale (the "FIRST PUT CLOSING")
shall take place at the offices of Kleinberg, Kaplan, Wolff & Cohen, P.C.
("KKWC") within 3 business days after delivery of the First Put Notice. The
Company's delivery of the First Put Notice shall constitute its representation
that the conditions set forth in paragraph (b) above (the "PUT CONDITIONS")
shall have been satisfied.
(d) In the event that on the date of receipt of the First Put Notice
or the First Put Closing, the purchase price for the Tranche A Shares shall
exceed 6% of the Company's Market Capitalization (as defined below) on such
date, then the number of Tranche A Shares shall be reduced such that the
aggregate purchase price of the Tranche A shall be equal to 6% of the Company's
Market Capitalization on such date. If Tranche A is so reduced, then the number
of Preferred Shares included in Tranche B (as defined below) shall be
proportionately increased (except to the extent that the First Call shall have
been exercised pursuant to Section 2.01 below) such that the total aggregate
purchase price for such Preferred Shares included in Tranche A and Tranche B
shall equal $17,500,000.
3
<PAGE>
EXHIBIT 10.2
(e) For purpose of this Agreement, a "MAJOR TRANSACTION" shall be
deemed to include any of the following events: (i) the consolidation, merger or
other business combination of the Company with or into another person (other
than (a) a consolidation, merger or other business combination in which the
holders of the Company's voting power immediately prior to such transaction
continue after the transaction to hold, directly or indirectly, the voting power
(on a fully diluted basis) of the surviving entity or entities necessary to
elect a majority of the members of the board of directors (or their equivalent
if other than a corporation) of such entity or entities, or (B) pursuant to a
"migratory" merger effected solely for the purposes of changing the jurisdiction
of incorporation of the Company); (ii) the sale or transfer of all or
substantially all of the Company's assets in one or a series of transactions;
(iii) the consummation of a purchase, tender or exchange offer made to, and
accepted by, the holders of more than 50% of the outstanding shares of Common
Stock or (iv) any "going private" transaction.
For purpose of this, "MARKET CAPITALIZATION" shall mean the
aggregate market value of the outstanding Common Stock based on the closing bid
price on the prior Trading Day on the market or exchange on which the Common
Stock is then principally traded.
For purposes of this Agreement, "TRADING DAY" shall mean a day
on which there is trading on Principal Market or other market or exchange on
which the Common Stock is then principally traded.
For purpose of this Agreement, "MATERIAL ADVERSE EFFECT" means
any adverse effect on the business, operations, properties, prospects, or
financial condition of the Company and its subsidiaries, if any, which is
(either alone or together with all other adverse effects) material to the
Company and its subsidiaries, if any, taken as a whole, and any material adverse
effect on the transactions contemplated under Transaction Documents, the Series
D Transaction Documents or the Equity Line Documents.
Section 1.02 Company's Second Put.
(a) At any time during the period commencing on the later of the
Trading Date that (i) all Tranche A Shares shall have been issued and
subsequently converted into Common Shares and a registration statement covering
the resale by the Investor of the Common Shares issuable upon conversion of the
Tranche A Shares shall have been declared effective and remained effective for
at least five Trading Days following the delivery of Common Shares issued upon
conversion of the last Tranche A Shares to be converted, or (ii) June 30, 2000
and expiring at the close of business on November 1, 2000 (the "Second Put
Period"), the Company shall have the right to sell to the Investor all, but not
less than all, of a Tranche consisting of 8,750 Preferred Shares (subject to
adjustment as provided in Section 1.1 (d) and paragraph (d) below) ("TRANCHE
B"),
4
<PAGE>
EXHIBIT 10.2
subject to the conditions in paragraph (b) below (the "SECOND PUT"); provided
that the Investors shall not have exercised the Second Call (as defined below).
(b) The exercise of the Second Put shall be subject to the Put
Conditions, which conditions may be waived, in whole or in part, by the Investor
in its sole discretion.
(c) The exercise of the Second Put shall be effected by delivery of
a written notice by the Company to the Investor (the "SECOND PUT NOTICE"). Upon
delivery of the Second Put Notice to the Investor, subject to the applicable
closing conditions set forth in Article VI herein, the Company shall be
obligated to sell to the Investor and the Investor shall be obligated to
purchase from the Company, the Preferred Shares included in Tranche B (the
"TRANCHE B SHARES"). Closing of such purchase and sale ("SECOND PUT CLOSING")
shall take place at the offices of KKWC within 3 business days after delivery of
the Second Put Notice. The Company's delivery of the Second Put Notice shall
constitute its representation that the Put Conditions shall have been satisfied.
(d) In the event that on the date of receipt of the Second Put
Notice or the Second Put Closing, the purchase price for the Tranche B Shares
shall exceed 6% of the Company's Market Capitalization on such date, then the
number of Tranche B Shares shall be reduced such that the aggregate purchase
price of the Tranche B Shares shall be equal to 6% of the Company's Market
Capitalization on such date.
Section 1.03 Put Closing Not Timely Effected By The Company. In the event
that either the First Put Closing or the Second Put Closing (each a "PUT
CLOSING") shall not have been effected within 10 business days after the receipt
of the First Put Notice or the Second Put Notice (each a "Put Notice"), as the
case may be, for any reason other than the failure of Investor to comply with
the closing conditions applicable to Investor, then , at the sole option of the
Investor, the related Put may be cancelled by the Investor, and such Put shall
thereupon be of no further force or effect.
ARTICLE II
INVESTOR'S CALL RIGHTS
Section 2.01 Investor's First Call.
(a) The Investor has the option, exercisable from and including the
date hereof, until the close of business on April 1, 2000 (subject to extension
as set forth in Section 2.3 (a) below) (the "FIRST CALL EXPIRATION DATE"), to
purchase all, but not less than all, of Tranche A (except as set forth below)
from the Company (subject to the adjustments set forth in Paragraph (c) below),
for an aggregate consideration of $1,000 per Tranche A Share (the "FIRST CALL").
The First Call shall not be exercisable if the First Put shall have been
exercised (provided that the First Put shall not have been cancelled
5
<PAGE>
EXHIBIT 10.2
pursuant to Section 1.03 above), except that in the event that the First Put
shall have been exercised and the number of Tranche A Shares shall have been
limited pursuant to Section 1.1(d), then the First Call shall remain exercisable
until the First Call Expiration Date, for the balance of the Tranche B Shares
that would have been included but for such limitation, subject to the limitation
in paragraph (c) below.
(b) The First Call shall be exercised by written notice to the
Company (the "FIRST CALL NOTICE"), which notice may be given concurrently with
the execution and delivery of this Agreement. Upon delivery of the First Call
Notice, subject to the applicable closing conditions contained in Article VI,
the Company shall be obligated to sell and deliver to the Investor and the
Investor shall be obligated to purchase from the Company, the Tranche A Shares.
Closing of such purchase and sale ("FIRST CALL CLOSING") shall take place at the
offices of KKWC within three business days after the delivery of the First Call
Notice.
(c) In the event that on the date of the First Call Notice or the
First Call Closing, the aggregate consideration for Tranche A shall be in excess
of 9% of the Company's Market Capitalization, then the number of Tranche A
Shares shall be reduced such that such aggregate consideration shall equal 9% of
the Company's Market Capitalization. If Tranche A is so reduced, the number of
Preferred Shares in Tranche B shall be correspondingly increased so that the
total consideration for the Preferred Shares in Tranche A and Tranche B shall
equal $17,500,000.
Section 2.02 Investor's Second Call.
(a) At any time after June 30, 2000, but no later than November 1,
2000 (subject to extension as set forth in Section 2.3(b) below) (the "SECOND
CALL EXPIRATION DATE"), the Investors may exercise the option to purchase all,
but not less than all, of Tranche B (except as set forth below) from the Company
for an aggregate consideration of $1,000 per Tranche B Share (the "SECOND
CALL"). The Second Call shall not be exercisable if the Second Put shall have
been exercised (provided that the Second Put shall not have been cancelled
pursuant to Section 1.03 above), except that in the event that the Second Put
shall have been exercised and the number of Tranche B Shares shall have been
limited pursuant to Section 1.2(d), then the Second Call shall remain exerciable
until the Second Call Expiration Date, for the balance of the Tranch B Shares
that would have been included but for such limitation, subject to the limitation
in paragraph (c) below.
(b) The Second Call shall be exercised by written notice to the
Company (the "SECOND CALL NOTICE"). Upon delivery of the Second Call Notice,
subject to the applicable closing conditions contained in Article VI, the
Company shall be obligated to sell and deliver to the Investor and the Investor
shall be obligated to purchase from the Company, the Tranche B Shares. Closing
of such purchase and sale ("SECOND CALL
6
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EXHIBIT 10.2
CLOSING") shall take place at the offices of KKWC within three business days
after the delivery of the Second Call Notice.
(c) In the event that on the date of the Second Call Notice or the
Second Call Closing, the aggregate purchase price for the Tranche B Shares shall
exceed 9% of the Company's Market Capitalization, then the number of Tranche B
Shares shall be reduced such that such aggregate consideration shall equal 9% of
the Company's Market Capitalization.
Section 2.03 Extension of First Call and Second Call Expiration Dates.
(a) In the event that there is a delay in the registration of shares
of Common Stock pursuant to the registration rights agreement contained in the
Series D Transaction Documents beyond the required time set forth therein (other
than the requirement that the registration statement be filed within 30 days
which requirement is hereby waived by the Investor), then the First Call
Expiration Date shall be extended by one day for each day that such registration
is not effected by the required time set forth in such registration rights
agreement.
(b) In the event that there is a delay in the Registration of Common
Shares, issuable upon conversion of the Tranche A Shares, pursuant to the
Registration Rights Agreement beyond the required time set forth therein, then
the Second Call Expiration Date shall be extended by one day for each day that
the registration is not effected by the required time set forth in the
Registration Rights Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to the Investor as of
the date hereof, the date of any First Put Notice or Second Put Notice (each a
"Put Notice") and on the date of any Put Closing.
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE EFFECT. The
Company is a corporation duly incorporated and existing in good standing under
the laws of the State of Delaware and has the requisite corporate power to own
its properties and to carry on its business as now being conducted. The Company
does not have any subsidiaries other than the subsidiaries listed on Schedule
3.1(a) attached hereto ("SUBSIDIARIES"). Except where specifically indicated to
the contrary, all references in this Agreement to subsidiaries shall be deemed
to refer to all direct and indirect subsidiaries of the Company. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the
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EXHIBIT 10.2
business conducted or property owned by it makes such qualification necessary
other than those in which the failure so to qualify would not have a Material
Adverse Effect.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all requisite
corporate power and authority to enter into and perform the Transaction
Documents and to issue the Preferred Shares in accordance with the terms hereof,
(ii) the execution and delivery of this Agreement and the Registration Rights
Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including the issuance of the Preferred Shares
and the resolutions contained in the Certificate, have been duly authorized by
all necessary corporate action, and no further consent or authorization of the
Company or its Board of Directors (or any committee or subcommittee thereof) or
stockholders is required, (iii) this Agreement and the Registration Rights
Agreement have been duly executed and delivered by the Company, (iv) this
Agreement, the Certificate and the Registration Rights Agreement constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except (A) as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of creditors'
rights and remedies or by other equitable principles of general application, and
(B) to the extent the indemnification provisions contained in this Agreement and
the Registration Rights Agreement may be limited by applicable federal or state
securities laws and (v) the Preferred Shares have been duly authorized and, upon
issuance thereof and payment therefor in accordance with the terms of this
Agreement, the Preferred Shares will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, claims and encumbrances.
(c) CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Common Stock, of which
as of the date hereof, 23,629,489 shares are issued and outstanding, 8,444,131
shares are issuable and reserved for issuance pursuant to the Company's stock
option and purchase plans and 1,048,539 shares are issuable and reserved for
issuance pursuant to securities exercisable or exchangeable for, or convertible
into, shares of Common Stock, and (ii) 2,000,000 shares of preferred stock, of
which as of the date hereof, (A) 23,500 shares were designated as Series C
Preferred Stock and all shares of which have been issued, converted and
cancelled, (B) 7,500 shares were designated as Series D Preferred Stock, all
shares of which have been issued, converted and cancelled, and (C) 17,500 shares
designated as Series E Preferred Stock, none of which shares were issued and
outstanding and all of such were reserved for issuance hereunder. All of such
outstanding shares have been, or upon issuance will be, validly issued, fully
paid and nonassessable. As of the date hereof, except as contemplated by the
Series D Transaction Documents or the Equity Line Documents or as disclosed in
Schedule 3.1(c), (i) no shares of the Company's capital stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company, (ii) there are no outstanding debt
8
<PAGE>
EXHIBIT 10.2
securities, (iii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the Securities Act of 1933, as amended ("SECURITIES ACT"
or "1933 ACT") (except the Registration Rights Agreement and the registration
rights agreements included in the Series D Transaction Documents and the Equity
Line Documents), (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions other
than the Series D Preferred Stock, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Preferred Shares as described in this Agreement and (vii) the Company does
not have any stock appreciation rights or "phantom stock" plans or agreements or
any similar plan or agreement. The Company has furnished to the Investor true
and correct copies of the Company's Certificate of Incorporation, as amended and
as in effect on the date hereof (the "CERTIFICATE OF INCORPORATION"), and the
Company's By-laws, as in effect on the date hereof (the "BY-LAWS"), and the
terms of all securities convertible into or exercisable for Common Stock and the
material rights of the holders thereof in respect thereto.
(d) ISSUANCE OF SHARES. Upon issuance in accordance with this
Agreement and the Certificate, the Preferred Shares and Common Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof.
(e) NO CONFLICTS. Except as disclosed in Schedule 3.1(e), the
execution, delivery and performance of the Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Certificate of Incorporation,
any Certificate of Designations, Preferences and Rights of any outstanding
series of preferred stock of the Company or the By-laws; (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
the rules and
9
<PAGE>
EXHIBIT 10.2
regulations of the Nasdaq National Market ("PRINCIPAL MARKET") or principal
securities exchange or trading market on which the Common Stock is traded or
listed) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Except as disclosed in Schedule 3.1(e), neither the Company nor its
Subsidiaries is in violation of any term of, or in default under, (x) its
Certificate of Incorporation, any Certificate of Designations, Preferences and
Rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, (y) any material contract,
agreement, mortgage, indebtedness, indenture, instrument, or (z) any judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, the non-compliance with which (in the case of (z) only), would
be material to the Company or interfere with the performance of its obligations
under the Transaction Documents. Except as specifically contemplated by this
Agreement and as required under the 1933 Act, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under, or contemplated by, the Transaction Documents in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3.1(e), all
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company complies with and is not in
violation of the listing requirements of the Principal Market as in effect on
the date hereof and on each of the Closing Dates and is not aware of any facts
which would reasonably lead to delisting or suspension of the Common Stock by
the Principal Market in the foreseeable future.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 1997,
the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the 1934 Act (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC DOCUMENTS"). The Company has delivered to the Investor
or its representatives true and complete copies of any SEC Documents that were
not filed electronically via EDGAR. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting
10
<PAGE>
EXHIBIT 10.2
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents, including,
without limitation, information referred to in Section 3.2(b) of this Agreement,
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading. Neither the
Company nor any of its Subsidiaries or any of their officers, directors,
employees or agents have provided the Investor with any material, nonpublic
information which was not publicly disclosed prior to the date hereof.
(g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule
3.1(g) or the SEC Documents filed at least five (5) days prior to the date
hereof, since December 31, 1998 there has been no adverse change or adverse
development in the business, properties, assets, operations, financial
condition, prospects, liabilities or results of operations of the Company or its
Subsidiaries which has had or, to the knowledge of the Company or its
Subsidiaries, is reasonably likely to have a Material Adverse Effect. The
Company has not taken any steps, and does not currently expect to take any
steps, to seek protection pursuant to any bankruptcy law nor does the Company or
its Subsidiaries have any knowledge or reason to believe that its creditors
intend to initiate involuntary bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
(i) except as set forth in Schedule 3.1(h) and (ii) except which individually
and in the aggregate, respectively, would be reasonably likely to result in
liability to the Company in excess of $50,000 and $100,000, respectively.
(i) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF SHARES. The
Company acknowledges and agrees that the Investor is acting solely in the
capacity of arm's length purchaser with respect to the Transaction Documents and
the transactions contemplated hereby and thereby. The Company further
acknowledges that the Investor is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by the Investor or any of its respective
11
<PAGE>
EXHIBIT 10.2
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the
Investor's purchase of the Preferred Shares. The Company further represents to
the Investor that the Company's decision to enter into the Transaction Documents
has been based solely on the independent evaluation by the Company and its
representatives.
(j) NO UNDISCLOSED EVENTS, LIABILITIES, DEVELOPMENTS OR
CIRCUMSTANCES. No event, liability, development or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, prospects, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws on a
registration statement filed with the SEC relating to an issuance and sale by
the Company of its Common Stock and which has not been publicly disclosed.
(k) NO INSIDE INFORMATION. The Company has not provided and, the
Company shall not provide, any Investor with any material non-public
information.
(l) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of
Preferred Shares to the Investor to be integrated with prior offerings by the
Company for purposes of the 1933 Act or any applicable shareholder approval
provisions, including, without limitation, under the rules and regulations of
the Principal Market, nor will the Company or any of its Subsidiaries take any
action or steps that would cause the offering of the Shares to be integrated
with other offerings.
(m) EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened, the effect
of which would be reasonably likely to result in a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to a collective
bargaining agreement. The Company and its Subsidiaries believe that relations
between the Company and its Subsidiaries and their respective employees are
good. No executive officer (as defined in Rule 501(f) of the 1933 Act) whose
departure would be adverse to the Company has notified the Company that such
officer intends to leave the Company or otherwise terminate such officer's
employment with the Company.
(n) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3.1(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
12
<PAGE>
EXHIBIT 10.2
approvals, government authorizations, trade secrets or other intellectual
property rights have expired or terminated, or are expected to expire or
terminate within two (2) years from the date of this Agreement. The Company and
its Subsidiaries do not have any knowledge of any infringement by the Company or
its Subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3.1(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge, being
threatened against, the Company or its Subsidiaries regarding trademarks, trade
name rights, patents, patent rights, inventions, copyrights, licenses, service
names, service marks, service mark registrations, trade secrets or other
infringement. The Company and its Subsidiaries have taken reasonable security
measures to protect the secrecy, confidentiality and value of all of their
intellectual properties.
(o) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS", (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval where such noncompliance or
failure to receive permits, licenses or approvals referred to in clauses (i),
(ii) or (iii) above could have, individually or in the aggregate, a Material
Adverse Effect.
(p) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3.1(p) or such as do not
materially and adversely affect the value of such property and do not interfere
with the use made and proposed to be made of such property by the Company or any
of its Subsidiaries. Any real property and facilities held under lease by the
Company or any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
(q) INSURANCE. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for
13
<PAGE>
EXHIBIT 10.2
and neither the Company nor any such Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries taken as a whole.
(r) REGULATORY PERMITS. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities, necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(s) INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(t) FOREIGN CORRUPT PRACTICES ACT. Neither the Company, nor any
director, officer, agent, employee or other person acting on behalf of the
Company or any Subsidiary has, in the course of acting for, or on behalf of, the
Company, directly or indirectly used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; directly or indirectly made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or any similar treaties of
the United States; or directly or indirectly made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government or party official or employee.
(u) TAX STATUS. Except as set forth on Schedule 3.1(u), the Company
and each of its Subsidiaries has made or filed all United States federal and
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the
14
<PAGE>
EXHIBIT 10.2
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the Company is not aware of any basis for any such claim.
(v) CERTAIN TRANSACTIONS. Except as set forth on Schedule 3.1(v) and
in the SEC Documents filed on EDGAR at least five (5) Trading Days prior to the
date hereof and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3.1(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which any
officer, director or any such employee has a substantial interest or is an
officer, director, trustee or partner.
(w) DILUTIVE EFFECT. The Company understands and acknowledges that
the number of Common Shares issuable upon conversion of Preferred Shares
purchased pursuant to this Agreement will increase in certain circumstances. The
Company further acknowledges that, subject to such limitations as are expressly
set forth in the Transaction Documents, its obligation (x) to issue Preferred
Shares on exercise of the options contained in Articles I and II hereof, and (y)
to issue Common Shares upon conversion of Preferred Shares purchased pursuant to
this Agreement, is absolute and unconditional regardless of the dilutive effect
that such issuances may have on the ownership interests of other shareholders of
the Company.
(x) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable Section 203 of the Delaware General Corporation Law, or any other
similar anti-takeover provision contained in the Company's Certificate of
Incorporation or otherwise which is or could become applicable to the Investor
as a result of the transactions contemplated by this Agreement, including,
without limitation, the Company's issuance of the Preferred Shares and the
Investor's ownership of the Preferred Shares.
(y) RIGHTS PLAN. Except for the Amended and Restated Share Rights
Agreement dated July 24, 1997, as amended through the date of this Agreement,
neither the Company nor any of its Subsidiaries has adopted a shareholder rights
plan or similar arrangement relating to accumulations of beneficial ownership of
Common Stock or a change in control of the Company. The Company confirms that no
provision of such plan or similar or successor plan will, under any present or
future circumstances, delay, prevent or interfere with the performance of any of
the Company's obligations under the Transaction Documents and such plan will not
be "triggered" by such performance,
15
<PAGE>
EXHIBIT 10.2
including, without limitation, the exercise of any Put or Call, the sale of any
Preferred Shares, or the conversion of any Preferred Shares.
(z) MARKET CAPITALIZATION. As of the date hereof, the aggregate
market value of the voting common equity of the Company held by non-affiliates
of the Company is greater than $150 million and on the date of the filing of the
Registration Statement, such aggregate market value shall be greater than $150
million as of a date within 60 days prior to such filing.
(aa) OBLIGATIONS ABSOLUTE. Each of the Company and the Investor
agrees that, subject only to the conditions, qualifications and exceptions (if
any) specifically set forth in the Transaction Documents, its obligations under
the Transaction Documents are unconditional and absolute. Except to the extent
(if any) specifically set forth in the Transaction Documents, each party's
obligations thereunder are not subject to any right of set off, counterclaim,
delay or reduction.
(bb) ISSUANCE OF COMMON SHARES. The Common Shares are duly
authorized and reserved for issuance and, upon conversion of Preferred Shares in
accordance with the Certificate (including receipt by the Company of the
Preferred Shares or being converted or a lost stock affidavit), such Common
Shares will be validly issued, fully paid and non-assessable, free and clear of
any and all liens, claims and encumbrances, and entitled to be traded on the
Principal Market or the New York Stock Exchange or the American Stock Exchange,
or the Nasdaq small cap market (collectively with the Principal Market, the
"APPROVED MARKETS"), and the holders of such Common Shares shall be entitled to
all rights and preferences accorded to a holder of Common Stock. As of the date
of this Agreement, the outstanding shares of Common Stock are currently listed
on the Principal Market.
(cc) FORM S-3. The Company is eligible to file the Registration
Statement (as defined in the Registration Rights Agreement) for secondary
offerings on Form S-3 (as in effect on the date of this Agreement) under the
1933 Act and rules promulgated thereunder, and Form S-3 (as in effect on the
date of this Agreement) is permitted to be used for the transactions
contemplated hereby under the 1933 Act and rules promulgated thereunder.
Section 3.02 Representations and Warranties of the Investor. The Investor,
hereby makes the following representations and warranties to the Company as of
the date hereof, on the date of the First Call Notice or the Second Call Notice
(each a "Call Notice") and on the date of any Closing:
(a) ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. The Investor
is an "accredited investor" as that term is defined in Rule 501(a) of Regulation
D under the 1933 Act. The Investor has such knowledge and experience in
financial and business
16
<PAGE>
EXHIBIT 10.2
matters that it is capable of evaluating the merits and risks of investment in
the Preferred Shares and Common Shares.
(b) INFORMATION. The Investor and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company which have been requested and materials relating to the offer and
sale of the Preferred Shares and Common Shares which have been requested by the
Investor. The Investor and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries nor any
other due diligence investigations conducted by the Investor or its advisors, if
any, or its representatives shall modify, amend or affect the Investor's right
to rely on the Company's representations and warranties contained in Section 3.1
above. The Investor understands that its investment in the Preferred Shares and
Common Shares involves a high degree of risk. The Investor has sought such
accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Preferred
Shares and Common Shares.
(c) NO GOVERNMENTAL REVIEW. The Investor understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Preferred Shares
and Common Shares or the fairness or suitability of the investment in the
Preferred Shares and Common Shares nor have such authorities passed upon or
endorsed the merits of the offering of the Preferred Shares and Common Shares.
(d) LEGENDS. The Company shall issue certificates for the Preferred
Shares and Common Shares to the Investor without any legend except as described
in Article VII below. The Investor covenants that, in connection with any
transfer of Common Shares by the Investor pursuant to the registration statement
contemplated by the Registration Rights Agreement, it will comply with the
applicable prospectus delivery requirements of the 1933 Act, provided that
copies of a current prospectus relating to such effective registration statement
are or have been supplied to the Investor.
(e) AUTHORIZATION; ENFORCEMENT. This Agreement, and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Investor and is a valid and binding agreement of the Investor
enforceable against the Investor in accordance with their terms, subject as to
enforceability to general principles of equity and to applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies. The Investor has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement, the
Registration Rights Agreement and each other agreement entered into by the
parties hereto in connection with the transactions contemplated by this
Agreement.
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EXHIBIT 10.2
(f) RESIDENCY. The Investor is a resident of the Cayman Islands or
such other jurisdiction as the Company shall be advised of in writing by the
Investor.
(g) NO CONFLICTS. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of the certificate of incorporation, by-laws or
other documents of organization of the Investor.
(h) INVESTMENT REPRESENTATION. If purchasing Preferred Shares
pursuant to this Agreement, the Investor will be purchasing such Preferred
Shares for its own account and not with a view to distribution in violation of
any securities laws. The Investor has been advised and understands that neither
the Preferred Shares nor the shares of Common Stock issuable upon conversion
thereof have been registered under the 1933 Act or under the "blue sky" laws of
any jurisdiction and may be resold only if registered pursuant to the provisions
of the 1933 Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law. The Investor has been advised and understands that the Company in
issuing the Preferred Shares is relying upon, among other things, the
representations and warranties of the Investor contained in this Section 3.2 in
concluding that such issuance is a "private offering" and is exempt from the
registration provisions of the 1933 Act.
(i) RULE 144. The Investor understands that there is no public
trading market for the Preferred Shares that none is expected to develop, and
that the Preferred Shares must be held indefinitely unless and until such
Preferred Shares or Common Shares received upon conversion thereof are
registered under the 1933 Act or an exemption from registration is available.
The Investor has been advised or is aware of the provisions of Rule 144
promulgated under the 1933 Act.
(j) BROKERS. The Investor has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by the Company or the Investor relating to this Agreement or the
transactions contemplated hereby.
(k) RELIANCE BY THE COMPANY. The Investor understands that the
Preferred Shares are being offered and sold in reliance on a transactional
exemption from the registration requirements of Federal and state securities
laws and that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Investor set forth herein in order to determine the applicability of such
exemptions and the suitability of the Investor to acquire the Preferred Shares.
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EXHIBIT 10.2
ARTICLE IV
COVENANTS
Section 4.01 Registration and Listing; Effective Registration. Until such
time as no Preferred Shares or options to sell or acquire Preferred Shares
pursuant to Articles I or II, are outstanding, the Company will cause the Common
Stock to continue at all times to be registered under Sections 12(b) or (g) of
the Exchange Act, will comply in all material respects with its reporting and
filing obligations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and will not take any action or file any document (whether or
not permitted by the Exchange Act or the rules thereunder) to terminate or
suspend such reporting and filing obligations. Until such time as no Preferred
Shares are outstanding, the Company shall continue the listing or trading of the
Common Stock on the Principal or one of the other Approved Markets and comply in
all material respects with the Company's reporting, filing and other obligations
under the bylaws or rules of the Approved Market on which the Common Stock is
listed. The Company shall cause the Common Shares to be listed on the Principal
Market or one of the other Approved Markets no later than the effectiveness of
the registration of the Common Shares under the Act, and shall continue such
listing(s) on one of the Approved Markets, for so long as any Preferred Shares
are outstanding.
Section 4.02 Certificates on Conversion. Upon any conversion by the
Investor (or then holder of Preferred Shares) of the Preferred Shares pursuant
to the Certificate, the Company shall issue and deliver to the Investor (or
holder) within three (3) Trading Days of the conversion date a new certificate
or certificates for the number of Preferred Shares which the Investor (or
holder) has not yet elected to convert but which are evidenced in part by the
certificate(s) submitted to the Company in connection with such conversion (with
the denominations of such new certificate(s) designated by the Investor or
holder).
Section 4.03 Replacement Certificates. The certificate(s) representing the
Preferred Shares held by any Investor (or then holder) may be exchanged by the
Investor (or such holder) at any time and from time to time for certificates
with different denominations representing an equal aggregate number of Preferred
Shares, as requested by the Investor (or such holder) upon surrendering the
same. No service charge will be made for such registration or transfer or
exchange.
Section 4.04 Securities Compliance. The Company shall notify the SEC and
the Principal Market, in accordance with their requirements, of the transactions
contemplated by this Agreement, the Certificate and the Registration Rights
Agreement, and shall take all other necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, for the legal and
valid issuance of the Preferred Shares hereunder and the Common Shares issuable
upon conversion thereof.
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EXHIBIT 10.2
Section 4.05 Notices. The Company agrees to provide all holders of
Preferred Shares with copies of all notices and information, including without
limitation notices and proxy statements in connection with any meetings, that
are provided to the holders of shares of Common Stock, contemporaneously with
the delivery of such notices or information to such Common Stock holders.
Section 4.06 Use of Proceeds. The Company agrees that the net proceeds
received by the Company from the sale of the Preferred Shares hereunder shall be
used for legally permitted corporate purposes.
Section 4.07 Reservation Preferred Shares; Stock Issuable Upon Conversion.
(a) The Company shall reserve all authorized but unissued Series E
Preferred Stock for issuance to the Investor pursuant to the terms of this
Agreement.
(b) The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Preferred Shares, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all Preferred Shares, and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all the then Preferred Shares, the Company will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose, including without limitation engaging in best efforts to
obtain the requisite shareholder approval. Without in any way limiting the
foregoing, the Company agrees to reserve and at all times keep available solely
for purposes of conversion of Preferred Shares, such number of authorized but
unissued shares of Common Stock that is at least equal to 200% of the number of
Common Shares issuable upon conversion of all Preferred Shares. If at any time
the number of authorized but unissued shares of Common Stock is not sufficient
to effect the conversion, up to the Maximum Common Stock Issuance (as defined in
Section 4.16 below), of all the then outstanding Preferred Shares, the Investor
shall be entitled to, INTER ALIA, the redemption rights provided in the
Registration Rights Agreement.
Section 4.08 Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Article VI of this Agreement.
Section 4.09 Form D; Blue Sky Laws. Upon a sale of Preferred Shares to the
Investor, the Company agrees to file a Form D with respect to the Preferred
Shares and Common Shares, as required under Regulation D and to provide a copy
thereof to the Investor promptly after such filing. The Company shall, on or
before the date of any Closing, take such action as the Company shall have
reasonably determined is necessary to qualify the Preferred Shares and Common
Shares for sale to the Investor under applicable securities or "blue sky" laws
of the states of the United States (or to obtain an
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EXHIBIT 10.2
exemption from such qualification), and shall provide evidence of any such
action so taken to the Investor on or prior to such Closing; provided, however,
that the Company shall not be required in connection therewith to register or
qualify as a foreign corporation in any jurisdiction where it is not now so
qualified or to take any action that would subject it to service of process in
suits or taxation, in each case, in any jurisdiction where it is not now so
subject.
Section 4.10 Press Release. The Company shall issue a press release on the
form of Exhibit 4.10 hereto (the "PRESS RELEASE") by the close of business on
the date following the date hereof. In addition, the Company shall make such
filings as shall be required to update the registration statements filed
pursuant to the Series D Transaction Documents and the Equity Line Documents to
reflect this Agreement and the transaction contemplated hereby.
Section 4.11 Shareholder Rights Plan. None of the acquisitions of
Preferred Shares or Common Shares nor the deemed beneficial ownership of shares
of Common Stock prior to, or the acquisition of such shares pursuant to, the
conversion of Preferred shares will in any event under any circumstances trigger
the poison pill provisions of any stockholders' rights or similar agreements, or
a substantially similar occurrence under any successor or similar plan.
Section 4.12 Issuances of Preferred Shares. The Company shall not, without
the prior written consent of the Investor, issue any Preferred Shares to any
persons other than the Investor.
Section 4.13 Financial Information. The Company agrees to send the
following to the Investor for so long as any Preferred Shares are outstanding:
(i) on the same day as the release thereof, facsimile or e-mail copies of all
press releases issued by the Company or any of its Subsidiaries; and (ii) copies
of any notices and other information made available or given to the shareholders
of the Company generally, contemporaneously with the making available or giving
thereof to the shareholders.
Section 4.14 Transactions With Affiliates. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length basis
in accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall be
approved by a majority of the Company's outside directors.
Section 4.15 Restrictions On Short Sales. So long as the Investor owns
Preferred Shares, the Investor will not sell short the Company's Common Stock if
as a result of such sale the Investor's net short position in the Company's
Common Stock would exceed the Investor's good faith estimate of the amount of
Common Shares that the Investor then has the right to acquire pursuant to
conversion of any Preferred Shares owned by the
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EXHIBIT 10.2
Investor or issuable to the Investor upon conversion of Preferred Shares
acquired upon exercise of any Put or Call, pursuant to the conversion of any
shares of Series D Preferred Stock owned by the Investor or pursuant to the
exercise of the warrants issued pursuant to the Equity Line Documents held by
the Investor or any affiliate of the Investor.
Section 4.16 Overall Limit on Common Stock Issuable. Notwithstanding
anything contained herein to the contrary, the number of Common Shares issuable
by the Company and acquirable by the Investor hereunder pursuant to conversion
of the Preferred Shares shall not exceed 4,725,892 shares of Common Stock
outstanding as of the date hereof, or such smaller amount as shall apply under
the rules of the National Association of Securities Dealers, Inc. ("NASD") if
the NASD integrates the issuance of the Preferred Shares with the issuance of
other securities by the Company, subject to appropriate adjustment for stock
splits, stock dividends, combinations or other similar recapitalization
affecting the Common Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the
issuance of shares hereunder in excess of the Maximum Common Stock Issuance
shall first be approved by the Company's shareholders in accordance with
applicable law and the By-laws and Articles of Incorporation of the Company.
Without limiting the generality of the foregoing, such shareholders' approval
must duly authorize the issuance by the Company of shares of Common Stock
totaling the Maximum Common Stock Issuance or more of the shares of Common Stock
outstanding on the date hereof. The parties understand and agree that the
Company's failure to seek or obtain such shareholder approval shall in no way
adversely affect the validity and due authorization of the issuance and sale of
Preferred Shares hereunder, and that such approval pertains only to the
applicability of the Maximum Common Stock Issuance limitation provided in this
Section. The Company agrees to provide, upon request by the Investor,
information on the number reserved shares of Common Stock which may be issued
without exceeding the Maximum Common Stock Issuance. In the event that Common
Shares may not be issued without exceeding the Maximum Common Stock Issuance,
then the Company shall thereupon use its best efforts to obtain shareholder
approval to issue the Common Shares in excess of the Common Stock Issuance
within 90 days of such deficiency (the "Approval Period"). In the event that
such approval is not obtained by the end of the Approval Period, the Investor
shall be entitled to the conversion deficiency remedies set forth in Section
2(b)(iv) of the Registration Rights Agreement. If a conversion notice for
Preferred Shares is tendered by the Investor during the Approval Period, then
the Investor shall be entitled to the difference between (A) the closing bid
price of the Common Stock on the date preceding the date of the Conversion
Notice multiplied by the number of Common Shares issued upon such conversion and
(B) the aggregate conversion price of such Common Shares.
Section 4.17 Right of First Refusal. From the date hereof until December
31, 2000, neither the Company nor any Subsidiary shall: offer, sell, contract to
sell or otherwise issue or deliver or dispose of any capital stock of the
Company or any Subsidiary, or securities convertible into, exchangeable for or
exercisable for, or which
22
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EXHIBIT 10.2
derive any substantial portion of their value from, capital stock of the Company
or any Subsidiary ("Equity Securities") or engage in a financing involving its
Equity Securities (other than a transaction involving the grant of employee
stock options pursuant to an employee stock option plan (not to exceed 475,668
shares of Common Stock in the aggregate), an employee stock purchase plan (not
to exceed 42,581 shares of Common Stock in the aggregate), a joint venture or
strategic investment entered into with another entity in the same or
complementary line of business or a bona fide public offering other than an
equity line) unless such offer, sale or financing ("FINANCING TRANSACTION") is
first offered to the Investor on the same terms and conditions to be offered to
the non-Investor; provided, however, that in the case of an offer consisting in
whole or in part of consideration other than cash, the Investor shall have the
right to offer the fair market value cash equivalent of such offer. The Company
shall make such offer by providing the Investor with written notice of the
Company's intention to enter into the Financing Transaction together with a term
sheet containing the economic terms and significant provisions of the Financing
Transaction, promptly following receipt of such terms from a third party, and
any other information reasonably requested by the Investor (the "OFFER"). Such
Offer shall be given with respect to each Financing Transaction contemplated by
the Company. The Investor shall have ten (10) days from receipt of the Offer to
deliver a written notice to the Company that the Investor wished to accept the
Offer in whole or in part (subject to reasonable acceptable definitive
documentation) for the Financing Transaction. If the Investor does not accept
the Offer in whole or in part or fails to respond within such ten (10) day
period, then the Company shall be permitted to complete such Financing
Transaction without the Investor on terms and conditions substantially identical
to those contained in the Offer, provided that the transaction is consummated
within ninety (90) days of receipt of the Offer. If the Investor accepts such
Offer in whole or in part, the consummation of such transaction with the
Investor shall occur by the later of: (i) the time originally provided by the
Financing Transaction with the third party or (ii) 30 days from the receipt of
the Investor's notice. If any Financing Transaction is contemplated on terms and
conditions not substantially identical to those contained in the Offer, then
such Financing Transaction shall be deemed a new Financing Transaction and the
Investor shall again be entitled to receive an Offer for such Financing
Transaction on such new terms and conditions (and/or with such new definitive
documentation if applicable.
ARTICLE V
TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of the Investor or its respective nominee(s), for the Common Shares in
such amounts as specified from time to time by the Investor to the Company upon
delivery of a conversion notice (the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS").
The Company warrants that no
23
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EXHIBIT 10.2
instruction relating to the Common Shares other than the Irrevocable Transfer
Agent Instructions referred to in this Article V will be given by the Company to
its transfer agent and that the Common Shares shall be freely transferable on
the books and records of the Company as contemplated by Article VII below when
the legend referred to therein may be removed. Nothing in this Article V shall
affect in any way the Investor's obligations and agreements set forth in Section
3.2(d) to comply with all applicable prospectus delivery requirements, if any,
upon resale of the Common Shares. The Company shall instruct its transfer agent
to issue one or more certificates in such name and in such denominations as
specified by the Investor and without any restrictive legends. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Investor by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Investor shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
ARTICLE VI
CONDITIONS TO CLOSINGS
Section 6.01 Conditions Precedent to the Obligation of the Company to Sell
the Preferred Shares. The obligation hereunder of the Company to issue and/or
sell the Preferred Shares to the Investor at a Put Closing, or the First Call
Closing or Second Call Closing (each a "Closing") is subject to the
satisfaction, at or before such Closing, as the case may be, of each of the
applicable conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Investor will be true and correct in all
material respects as of the date when made and as of the date of such Closing,
as though made at that time.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have performed
all agreements and satisfied all conditions required to be performed or
satisfied by the Investor at or prior to the Closing, including payment of the
applicable purchase price.
(c) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the
24
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EXHIBIT 10.2
consummation of any of the transactions contemplated by this Agreement or the
Registration Rights Agreement or the Certificate.
Section 6.02 Conditions Precedent to the Obligation of the Investor to
Purchase the Preferred Shares. The obligation hereunder of the Investor to
acquire and pay for any Preferred Shares at the first Closing (whether pursuant
to a Put or a Call) and on each subsequent Closing is subject to the
satisfaction, on the date hereof (in the case of paragraphs (e),(f) and (h)
below and at or before such Closing, of each of the applicable conditions set
forth below. These conditions are for the Investor's benefit and may be waived
by the Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the date of such Closing as
though made at that time (except for representations and warranties as of an
earlier date, which shall be true and correct in all material respects as of
such date).
(b) PERFORMANCE BY THE COMPANY. The Company shall have performed all
agreements and satisfied all conditions required to be performed or satisfied by
the Company at or prior to the Closing, including, without limitation, delivery
of certificates representing the Preferred Shares issued to Investor.
(c) NASDAQ TRADING. From the date hereof to the date of the Closing,
trading in the Company's Common Stock shall not have been suspended by the SEC
and trading in securities generally as reported by the Principal Market (or
other Approved Market) shall not have been suspended or limited, and the Common
Stock shall be listed on the Principal Market or another Approved Market.
(d) NO INJUNCTION. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents. The NASD shall not have objected or indicated that it may
object to the consummation of any of the transactions contemplated by this
Agreement.
(e) OPINION OF COUNSEL. On the date of this Agreement, the Investor
shall have received an opinion of counsel to the Company in form and substance
satisfactory to the Investor and at the Closing, the Investor shall have
received an opinion of counsel to the Company in the form attached hereto as
Exhibit 6.2(e) and such other opinions, certificates and documents as the
Investor or their counsel shall reasonably require incident to the Closing.
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EXHIBIT 10.2
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the Investor
shall have executed and delivered the Registration Rights Agreement in the form
and substance of Exhibit 6.2(f) attached hereto on the date of this Agreement.
(g) OFFICER'S CERTIFICATE. The Company shall have delivered to the
Investor a certificate in form and substance satisfactory to the Investor and
the Investor's Counsel, executed by an officer of the Company, certifying as to
satisfaction of closing conditions, satisfaction of the Put Conditions (if a Put
Closing), incumbency of signing officers, and the true, correct and complete
nature of the Certificate of Incorporation, By-Laws, good standing and
authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted for filing
by the Secretary of State of the State of Delaware on or before the date hereof
and a stamped copy thereof shall have been provided to the Investor's Counsel
not later than one business day from the date of this Agreement.
(i) MISCELLANEOUS. The Company shall have delivered to the Investor
such other documents relating to the transactions contemplated by this Agreement
or the Investor or its counsel may reasonable request.
(j) PUT CONDITIONS. If the Closing is a Put Closing, the Put
Conditions shall have been satisfied on the date of receipt of the Put Notice
and on the date of the Closing.
(k) COMPLIANCE WITH DOCUMENTS. The Company shall be in compliance
with all of its obligations under the Transaction Documents, the Series D
Transaction Documents and Equity Line Documents.
Section 6.03 Closing Deliveries.
(a) On the date of the first Closing, the Company shall deliver to
the Investor:
(i) Certificates representing the Tranche A Shares;
(ii) The certificate referred to in Section 6.2(g) above; and
(iii) The opinion of counsel referred to in Section 6.2(e)
above.
(b) On the date of the first Closing, the Investor shall deliver to
the Company:
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EXHIBIT 10.2
(i) The purchase price for the Tranche A Shares.
Section 6.04 Closing Deliveries at Subsequent Closings.
(a) On the date of each Closing after the first Closing, the Company
shall deliver to the Investor:
(i) certificates representing the Preferred Shares issued to
the Investor;
(ii) the certificate referred to in Section 6.2 (g) above;
(iii) the opinion of counsel referred to in Section 6.2(e).
(b) On the date of each subsequent Closing, the Investor shall
deliver to the Company:
The purchase price for the Preferred Shares purchased.
Section 6.05 Option to Convert Preferred Shares at Time of Exercise of Put
or Call. Concurrently with, or at any time after, the delivery of a Put Notice
or Call Notice, the Investor shall have the right to tender a conversion notice
for any or all of the Preferred Shares to be purchased pursuant to such Put or
Call (regardless of whether the Certificate has been filed), provided that the
Company's obligation to issue Common Stock upon conversion shall be conditioned
upon the consummation of the related Put Closing or Call Closing.
ARTICLE VII
LEGEND AND STOCK
Upon payment therefor as provided in this Agreement, the
Company will issue one or more certificates representing the Preferred Shares in
the name the Investor or its designees and in such denominations to be specified
by the Investor prior to (or from time to time subsequent to) each Closing. Each
certificate representing the Preferred Shares and any Common Shares issued upon
conversion thereof, prior to such Common Shares being registered under the 1933
Act for resale or available for resale under Rule 144 under the 1933 Act, shall
be stamped or otherwise imprinted with a legend substantially in the following
form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR OFFER OR SALE
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE
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EXHIBIT 10.2
REGISTRATION STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR
AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares without the
legend set forth above at such time as (i) the holder thereof is permitted to
dispose of such Preferred Shares and/or Common Shares issuable upon conversion
thereof pursuant to Rule 144 under the Act, or (ii) such Preferred Shares are
sold to a purchaser or purchasers who (in the opinion of counsel to the seller
or such purchaser(s), in form and substance reasonably satisfactory to the
Company and its counsel) are able to dispose of such shares publicly without
registration under the Act.
Prior to the Registration Statement (as defined in the
Registration Rights Agreement) being declared effective, any Common Shares
issued pursuant to conversion of Preferred Shares shall bear a legend in the
same form as the legend indicated above; provided that such legend shall be
removed from the Common Shares and the Company shall issue new certificates
without such legend if (i) the holder thereof is permitted to dispose of such
Common Shares pursuant to Rule 144 under the 1933 Act, (ii) such Common Shares
are registered for resale under the 1933 Act, or (iii) such Common Shares are
sold to a purchaser or purchasers who (in the opinion of counsel to the seller
or such purchaser(s), in form and substance reasonably satisfactory to the
Company and it counsel) are able to dispose of such shares publicly without
registration under the 1933 Act. Upon such Registration Statement becoming
effective, the Company agrees to promptly, but no later than three (3) business
days thereafter, issue new certificates representing such Common Shares without
such legend. Any Common Shares issued after the Registration Statement has
become effective shall be free and clear of any legends, transfer restrictions
and stop orders. Notwithstanding the removal of such legend, the Investor agrees
to sell the Common Shares represented by the new certificates in accordance with
the applicable prospectus delivery requirements (if copies of a current
prospectus are provided to the Investor by the Company) or in accordance with an
exemption from the registration requirements of the 1933 Act.
Nothing herein shall limit the right of any holder to pledge
these securities pursuant to a bona fide margin account or lending arrangement
entered into in compliance with law, including applicable securities laws.
ARTICLE VIII
TERMINATION
Section 8.01 Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Investor.
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EXHIBIT 10.2
Section 8.02 Other Termination. In the event that a Closing shall not have
occurred within ten business days of the date of receipt of the relevant Put or
Call Notice due to the failure by one party (the "Defaulting Party") to satisfy
the closing conditions applicable to it, then the other party (the
"Non-Defaulting Party") may at its option, terminate the Defaulting Party's
right to acquire pursuant to a Call or sell (pursuant to a Put), as the case may
be, the Preferred Shares in the relevant Tranche. In the event that the Investor
is the Defaulting Party, then if its right to purchase the relevant Tranche is
terminated, its rights under Section 4.17 shall terminate at the same time.
ARTICLE IX
INDEMNIFICATION
In consideration of the Investor's execution and delivery of the this
Agreement and the Registration Rights Agreement and acquiring the Preferred
Shares hereunder and in addition to all of the Company's other obligations under
the Transaction Documents, the Company shall defend, protect, indemnify and hold
harmless the Investor and all of its partners, officers, directors, employees,
members and direct or indirect investors and any of the foregoing person's
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "INDEMNITEES") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"INDEMNIFIED LIABILITIES"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in the Transaction Documents or
any other certificate or document contemplated hereby or thereby, (b) any breach
of any covenant, agreement or obligation of the Company contained in the
Transaction Documents or any other certificate or document contemplated hereby
or thereby, (c) any cause of action, suit or claim brought or made against such
Indemnitee by a third party and arising out of or resulting from (i) the
execution, delivery, performance, breach by the Company or enforcement of the
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (ii) any transaction financed or to be financed
in whole or in part, directly or indirectly, with the proceeds of the issuance
of the Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares as an investor in the Company and (d) the enforcement of this
Section. Notwithstanding the foregoing, Indemnified Liabilities shall not
include any liability of any Indemnitee arising solely out of such Indemnitee's
willful misconduct or fraudulent action(s). To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law. Except as
otherwise set forth herein, the mechanics and procedures
29
<PAGE>
EXHIBIT 10.2
with respect to the rights and obligations under this Article IX shall be the
same as those set forth in Section 6 (other than Section 6(b)) of the
Registration Rights Agreement, including, without limitation, those procedures
with respect to the settlement of claims and Company's right to assume the
defense of claims.
ARTICLE X
GOVERNING LAW, MISCELLANEOUS.
Section 10.01 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICT OF LAWS. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY
OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER
OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR
DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY
SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT
IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS FOR SUCH NOTICES TO IT UNDER
THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IF ANY PROVISION OF THIS AGREEMENT SHALL BE INVALID OR UNENFORCEABLE IN ANY
JURISDICTION, SUCH INVALIDITY OR UNENFORCEABILITY SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF THE REMAINDER OF THIS AGREEMENT IN THAT JURISDICTION OR THE
VALIDITY OR ENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT IN ANY OTHER
JURISDICTION. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 10.02 Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due
30
<PAGE>
EXHIBIT 10.2
execution and shall be binding upon the signatory thereto with the same force
and effect as if the signature were an original, not a facsimile signature.
Section 10.03 Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
Section 10.04 Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Section 10.05 Entire Agreement; Amendments; Waivers.
(a) This Agreement supersedes all other prior oral or written
agreements between the Investor, the Company, their affiliates and persons
acting on their behalf with respect to the matters discussed herein, and this
Agreement and the instruments referenced herein (including the other Transaction
Documents) contain the entire understanding of the parties with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor the Investor makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Investor, and no provision hereof may be waived other than
by an instrument in writing signed by the party against whom enforcement is
sought.
(b) The Investor may at any time elect, by notice to the Company, to
waive (whether permanently or temporarily, and subject to such conditions, if
any, as the Investor may specify in such notice) any of its rights under any of
the Transaction Documents to acquire shares of Common Stock from the Company, in
which event such waiver shall be binding against the Investor in accordance with
its terms; provided, however, that the voluntary waiver contemplated by this
sentence may not reduce the Investor's obligations to the Company under the
Transaction Documents.
Section 10.06 Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery or (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
31
<PAGE>
EXHIBIT 10.2
If to the Company:
Secure Computing Corporation
601 Campus Drive South, Suite 7
New Brighton, MN 55112
Telephone: (651) 628-6221
Facsimile: (651) 628-2714
Attention: Ms. Mary Budge
and
Secure Computing Corporation
One Almaden Boulevard, Suite 400
San Jose, California 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Michael Anderegg
With a copy to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, California 94025
Telephone: (650) 234-4200
Facsimile: (650) 234-4299
Attention: Kyle Guse
If to the Transfer Agent:
NorWest Shareowner Services
161 North Concord Exchange Street
South St. Paul, MN 55075
Telephone: (651) 450-4045
Facsimile: (651) 450-4078
Attention: Transfer Agent
If to the Investor:
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Mark Brodsky and Brett Cohen
32
<PAGE>
EXHIBIT 10.2
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz
Each party shall provide five (5) days prior written notice to the other
party of any change in address, telephone number or facsimile number. Written
confirmation of receipt (A) given by the recipient of such notice, consent,
waiver or other communication, (B) mechanically or electronically generated by
the sender's facsimile machine containing the time, date, recipient facsimile
number and an image of the first page of such transmission or (C) provided by a
nationally recognized overnight delivery service shall be rebuttable evidence of
personal service, receipt by facsimile or receipt from a nationally recognized
overnight delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
Section 10.07 Successors and Assigns. Except as otherwise provided herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns, including any Permitted Assignee (as
defined below). The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor,
including by merger or consolidation. The Investor may assign some or all of its
rights hereunder to an affiliate or associate of the Investor or an entity or
fund which has the same principal investment adviser as the Investor, without
the consent of the Company, and to others, with the written consent of the
Company (in each case, a "PERMITTED ASSIGNEE"); provided, however, that any such
assignment shall not release the Investor from its obligations hereunder unless
such obligations are assumed by such assignee and the Company has consented to
such assignment and assumption. Notwithstanding anything to the contrary
contained in the Transaction Documents, the Investor shall be entitled to pledge
the Preferred Shares, Additional Preferred Shares or Common Shares in connection
with a bona fide margin account.
Section 10.08 No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 10.09 Survival. The representations, warranties and agreements of
the Company and the Investor contained in the Agreement shall survive each
Closing.
Section 10.10 Publicity. The Company and the Investor shall have the right
to approve before issuance any press releases or any other public statements
with respect
33
<PAGE>
EXHIBIT 10.2
to the transactions contemplated hereby; provided, however, that the Company
shall be entitled, without the prior approval of the Investor, to make any press
release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Investor shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
Section 10.11 Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section 10.12 Placement Agent. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Shares other than Rochon Capital, whose fees
will be paid exclusively by the Company. The Company and the Investor shall each
be responsible for the payment of any fees or commissions of placement agents or
brokers engaged, directly or indirectly, by the Company or the Investor,
respectively, in connection with the purchase of the Shares by the Investor. The
Company and the Investor shall pay, and hold the other party harmless against,
any liability, loss or expense (including, without limitation, reasonable
attorneys' fees and out-of-pocket expenses) arising in connection with any such
claim.
Section 10.13 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
Section 10.14 Remedies. The Investor and each Permitted Assignee shall
have all rights and remedies set forth in this Agreement and the Registration
Rights Agreement and all rights and remedies which such holders have been
granted at any time under any other agreement or contract and all of the rights
which such holders have under any law. Any person having any rights under any
provision of this Agreement shall be entitled to enforce such rights
specifically (without posting a bond or other security), to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The Investor and each Permitted Assignee without
prejudice may withdraw, revoke or suspend its pursuit of any remedy at any time
prior to its complete recovery as a result of such remedy.
Section 10.15 Payment Set Aside. To the extent that the Company makes a
payment or payments to the Investor hereunder or the Registration Rights
Agreement or the Investor enforces or exercises its rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered
34
<PAGE>
EXHIBIT 10.2
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
Section 10.16 Days. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
Section 10.17 Recission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, wherever the Investor exercises a right, election, demand
or option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the Investor
in its sole discretion may rescind or withdraw from time to time any relevant
notice, demand or election in whole or in part without prejudice to its future
actions and rights.
* * * * *
[SIGNATURE PAGE FOLLOWS]
35
<PAGE>
EXHIBIT 10.2
IN WITNESS WHEREOF, the parties hereto have caused this Common Stock
Investment Agreement to be duly executed as of the date and year first above
written.
COMPANY: INVESTOR:
SECURE COMPUTING CORPORATION WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-Fact
By: /s/ Tim McGurran By: /s/ Paul Singer
---------------------------------- ----------------------------------
Name: Tim McGurran Name: Paul Singer
Title: S.V.P. Operations and CFO Title: President
36
<PAGE>
EXHIBIT 10.2
LIST OF SCHEDULES
- -----------------
Schedule 3.1(a) Organization and Qualification
Schedule 3.1(c) Capitalization
Schedule 3.1(e) No Conflicts
Schedule 3.1(g) Absence of Certain Changes
Schedule 3.1(h) Absence of Litigation
Schedule 3.1(n) Intellectual Property Rights
Schedule 3.1(p) Title
Schedule 3.1(u) Tax Status
Schedule 3.1(v) Certain Transactions
LIST OF EXHIBITS
- ----------------
Exhibit 1.1A Certificate
Exhibit 4.10 Press Release
Exhibit 6.02 Officers' Certificate
Exhibit 6.2(e) Opinion of Counsel
37
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as of December
17, 1999, between Secure Computing Corporation, a Delaware corporation with
offices at One Almaden Boulevard, Suite 400, San Jose, California 95113 (the
"Company") and Westgate International, LP, a Cayman Islands limited partnership
with an office c/o Stonington Management Corporation, 712 Fifth Avenue, New
York, New York 10019 (the "Investor").
W I T N E S S E T H:
Whereas, pursuant to that certain Preferred Stock Investment Agreement,
dated on or about the date hereof, by and between the Company and the Investor
(the "Purchase Agreement"), the Company has agreed to sell and issue to the
Investor, and the Investor has agreed to purchase from the Company, an aggregate
of 5,000 shares, Liquidation Preference $1,000, of the Company's Series D 4%
Cumulative Convertible Preferred Stock (the "Initial Preferred Shares") subject
to the terms and conditions set forth therein and the Investors and the Company
have agreed that, pursuant to an option in the Purchase Agreement, the Investor
may purchase up to an additional 2,500 shares of the Company's Series D 4%
Cumulative Convertible Preferred Stock (the "Additional Preferred Shares" and
collectively with the Initial Preferred Shares, the "Preferred Shares"), subject
to terms and conditions substantially similar to those contained in the Purchase
Agreement; and
Whereas, the Purchase Agreement contemplates that the Preferred Shares
will be convertible into shares (the "Common Shares") of common stock, par value
$0.01, of the Company ("Common Stock") pursuant to the terms and conditions set
forth in the Certificate of Designations for the Preferred Shares (the
"Certificate"); and
Now, Therefore, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Purchase Agreement and
this Agreement, the Company and the Investors agree as follows:
1. Certain Definitions. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement or the
Certificate. As used in this Agreement, the following terms shall have the
following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such
terms in the Purchase Agreement; provided that they shall refer to the initial
Closing and Closing Date scheduled under the Purchase Agreement.
1
<PAGE>
EXHIBIT 10.3
"Commission" or "SEC" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Holder" and "Holders" shall include the Investor and any transferee or
transferees of the Preferred Shares, Common Shares or Registrable Securities
which have not been sold to the public to whom the registration rights conferred
by this Agreement have been transferred in compliance with this Agreement and
the Purchase Agreement.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean: (i) the Common Shares or other
securities issued or issuable to each Holder or its permitted transferee or
designee upon conversion of the Preferred Shares; (ii) securities issued or
issuable upon any stock split, stock dividend, recapitalization or similar event
with respect to such Common Shares; and (iii) any other security issued as a
dividend or other distribution with respect to, in exchange for or in
replacement of the securities referred to in the preceding clauses.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and disbursements of counsel to Holders
(using a single counsel selected by a majority in interest of the Holders) for a
"due diligence" examination of the Company and review of the Registration
Statement and related documents, and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company and further excluding any fees and disbursements for counsel in
connection with any due diligence review incurred in connection with the Common
Stock Investment Agreement, dated as of October 4, 1999, by and between
Manchester Securities Corp. and the Company).
"Registration Statement" shall have the meaning set forth in Section 2(a)
herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
2
<PAGE>
EXHIBIT 10.3
2. Registration Requirements. The Company shall use its best efforts to
effect the registration of the Registrable Securities (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the sale or distribution of all
the Registrable Securities in the manner (including manner of sale) and in all
states reasonably requested by the Holder. Such best efforts by the Company
shall include, without limitation, the following:
(a) The Company shall, as expeditiously as possible after the
Closing Date:
i. But in any event within 30 days of the Closing, prepare and
file a registration statement with the Commission pursuant to Rule 415 under the
Securities Act on Form S-3 under the Securities Act (or in the event that the
Company is ineligible to use such form, such other form as the Company is
eligible to use under the Securities Act) covering resales by the Holders of the
Registrable Securities ("Registration Statement"), which Registration Statement,
to the extent allowable under the Securities Act and the rules promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Preferred Shares. In the event that
the Registrable Securities issuable upon conversion of the Initial Preferred
Shares (the "INITIAL REGISTRABLE SECURITIES") can be registered on Form S-3, but
the Registrable Securities issuable upon conversion of the Additional Preferred
Shares (the "ADDITIONAL REGISTRABLE SECURITIES") cannot, then the Company shall
file two separate Registration Statements, one on Form S-3 to cover the Initial
Registrable Securities and the other, on such form as the Company shall be
permitted to use, to cover the Additional Registrable Securities. In such case,
all references herein to "Registration Statement" shall refer to both
Registration Statements. The number of shares of Common Stock initially included
in such Registration Statement shall be no less than the sum of two times the
number of Common Shares that are then issuable upon conversion of the Preferred
Shares. Nothing in the preceding sentence will limit the Company's obligations
to reserve shares of Common Stock pursuant to Section 3.7 of the Purchase
Agreement. Thereafter the Company shall use its best efforts to cause such
Registration Statement and other filings to be declared effective as soon as
possible, and in any event prior to 60 days following the Closing Date. Without
limiting the foregoing, the Company will promptly respond to all SEC comments,
inquiries and requests, and shall request acceleration of effectiveness at the
earliest possible date. The Company shall provide the Holders reasonable
opportunity to review any such Registration Statement or amendment or supplement
thereto prior to filing.
ii. Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the
3
<PAGE>
EXHIBIT 10.3
Act with respect to the disposition of all securities covered by such
Registration Statement and notify the Holders of the filing and effectiveness of
such Registration Statement and any amendments or supplements.
iii. Furnish to each Holder such numbers of copies of a current
prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any documents
incorporated by reference therein and such other documents as such Holder may
reasonably require in order to facilitate the disposition of Registrable
Securities owned by such Holder.
iv. Register and qualify the securities covered by such
Registration Statement under the securities or "Blue Sky" laws of all domestic
jurisdictions; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
v. Notify each Holder immediately of the happening of any event
(but not the substance or details of any such events unless specifically
requested by a Holder) as a result of which the prospectus (including any
supplements thereto or thereof) included in such Registration Statement, as then
in effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and use its
best efforts to promptly update and/or correct such prospectus.
vi. Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the threat or
initiation of any proceedings for that purpose. The Company shall use its best
efforts to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time.
vii. Permit counsel to the Holders to review the Registration
Statement and all amendments and supplements thereto within a reasonable period
of time (but not less than 2 full Trading Days (as defined in the Certificate))
prior to each filing, and shall not file any document in a form to which such
counsel reasonably objects and will not request acceleration of the Registration
Statement without prior notice to such counsel.
viii. List the Registrable Securities covered by such
Registration Statement with all securities exchange(s) and/or markets on which
the Common Stock is then listed and prepare and file any required filings with
the Nasdaq National Market or any exchange or market where the Common Shares are
traded.
4
<PAGE>
EXHIBIT 10.3
ix. Take all steps necessary to enable Holders to avail
themselves of the prospectus delivery mechanism set forth in Rule 153 (or
successor thereto) under the Act.
(b) Set forth below in this Section 2(b) are (I) events that may
arise that the Investors consider will interfere with the full enjoyment of
their rights under this Agreement, the Purchase Agreement and the Certificate
(the "Interfering Events"), and (II) certain remedies applicable in each of
these events.
Paragraphs (i) through (iv) of this Section 2(b) describe the
Interfering Events, provide a remedy to the Investors if an Interfering Event
occurs and provide that the Investors may require that the Company repurchase
outstanding Preferred Shares at a specified price if certain Interfering Events
are not timely cured.
Paragraph (v) provides, inter alia, that if default adjustments
required as the remedy in the case of certain of the Interfering Events are not
provided when due, the Company may be required by the Investors to redeem
outstanding Preferred Shares at a specified price.
Paragraph (vi) provides, inter alia, that the Investors have the
right to specific performance.
The preceding paragraphs in this Section 2(b) are meant to serve
only as an introduction to this Section 2(b), are for convenience only, and are
not to be considered in applying, construing or interpreting this Section 2(b).
i. Delay in Effectiveness of Registration Statement.
(A) In the event that such Registration Statement has not
been declared effective within 90 days from the Closing Date, then the Company
shall pay each Holder a Monthly Delay Payment (as defined below) for each 30 day
period (or portion thereof) that effectiveness of the Registration Statement is
delayed. In addition to the foregoing, if the Registration Statement has not
been declared effective within 120 days after the Closing Date, then each Holder
shall have the right to sell, at any time after the 120th day after the Closing
Date, any or all of its Preferred Shares to the Company for consideration (the
"Mandatory Repurchase Price") equal to the greater of (x) 120% of the
Liquidation Preference of all such Preferred Shares being sold to the Company,
(y) the Liquidation Preference for the Preferred Shares being sold to the
Company divided by the then applicable Conversion Price multiplied by the
greater of the last closing price of the Common Stock on (i) the date a Holder
exercises its option pursuant to this Section 2(b) to require repurchase of
Preferred Shares or (ii) the date on which the event triggering Holder's
remedies under this Section 2(b) first occurred, in each case payable in cash.
(B) As used in this Agreement, a "Monthly Delay Payment"
shall be a cash payment equal to 1% of the Liquidation Preference of the
Preferred Shares
5
<PAGE>
EXHIBIT 10.3
held a Holder for the first 30 day period (or portion thereof) that the
specified condition in this Section 2(b) has not been fulfilled or the specified
deficiency has not been remedied and 2% of such Liquidation Preference
thereafter for each subsequent 30 day period (or portion thereof) that the
specified condition in this Section 2(b) has not been fulfilled or the specified
deficiency has not been remedied. Payment of the Monthly Delay Payments and
Mandatory Repurchase Price shall be due and payable from the Company to such
Holder within 5 business days of demand therefor. Without limiting the
foregoing, if cash payment of the Mandatory Repurchase Price is not made within
such 5 business day period, the Holder may revoke and withdraw its election to
cause the Company to make such mandatory purchase at any time prior to its
receipt of such cash. At the option of the Holder, Monthly Delay Payments may be
added to the Liquidation Preference of the Preferred Shares held by it.
(C) Notwithstanding the foregoing, there shall be excluded
from the calculation of the number of days that the Registration Statement has
not been declared effective the delays which are solely attributable to delays
in the Investors providing information required for the Registration Statement.
ii. No Listing; Premium Price Redemption for Delisting of Class
of Shares.
(A) In the event that the Company fails, refuses or for any
other reason is unable to cause the Registrable Securities covered by the
Registration Statement to be listed with Nasdaq National Market or one of the
other Approved Markets (as defined in the Purchase Agreement) at all times
during the period ("Listing Period") from the 60th day following the Closing
Date until such time as all of the Preferred Shares shall have been subject to
mandatory conversion pursuant to the terms of the Certificate, then the Company
shall provide to each Holder a Monthly Delay Payment, for each 30 day period or
portion thereof during which such listing is not in effect. In addition to the
foregoing, following the 30th day that such listing is not in effect, each
Holder shall have the right to sell to the Company any or all of its Preferred
Shares at the Mandatory Repurchase Price. The provisions of Section 2(b)(i)(B)
shall apply to this Section 2(b)(ii)(A).
(B) In the event that shares of Common Stock of the Company
are not listed on any of the Approved Markets at all times following the Closing
Date, or are otherwise suspended from trading and remain unlisted or suspended
for 5 consecutive days, or if the Registrable Securities are not listed for 5
consecutive days following the Closing, then at the option of each Holder and to
the extent such Holder so elects, each Holder shall have the right to sell to
the Company the Preferred Shares held by such Holder, in whole or in part, for
the Mandatory Repurchase Price on the terms set forth in Section 2(b)(i)(B)
above
6
<PAGE>
EXHIBIT 10.3
iii. Blackout Periods. In the event any Holder's ability to sell
Registrable Securities under the Registration Statement is suspended for more
than (i) five (5) consecutive days or (ii) twenty (20) days in any calendar year
("Suspension Grace Period"), including without limitation by reason of any
suspension or stop order with respect to the Registration Statement or the fact
that an event has occurred as a result of which the prospectus (including any
supplements thereto) included in such Registration Statement then in effect
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing (a "Blackout"), then the
Company shall provide to each Holder a Monthly Delay Payment for each 30 day
period or portion thereof from and after the expiration of the Suspension Grace
Period, on the terms set forth in Section 2(b)(i)(B) above. In addition, at any
time following the expiration of the Suspension Grace Period if the Blackout
continues for more than five (5) additional consecutive days, a Holder shall
have the right to sell to the Company its Preferred Shares in whole or in part
for the Mandatory Repurchase Price on the terms set forth in Section 2(b)(i)(B)
above.
iv. Redemption for Conversion Deficiency. In the event that the
Company does not have a sufficient number of Common Shares available to satisfy
the Company's obligations to any Holder upon receipt of a Conversion Notice (as
defined in the Certificate) or is otherwise unable or unwilling for any reason
to issue such Common Shares (other than failure of the Holder to comply with the
conversion notice and delivery requirements of Section 5 of the Certificate)
(each, a "Conversion Deficiency") in accordance with the terms of the
Certificate for any reason after receipt of a Conversion Notice from any Holder,
then:
(A) The Company shall provide to each Holder a Monthly Delay
Payment for each 30 day period or portion thereof following the Conversion
Deficiency, on the terms set forth in Section 2(b)(i)(B) above.
(B) At any time five days after the commencement of the
running of the first 30-day period described above in clause (A) of this
paragraph (iv), at the request of any Holder, the Company promptly shall
purchase from such Holder, for the Mandatory Repurchase Price and on the terms
set forth in Section 2(b)(i)(B) above, the outstanding Preferred Shares equal to
such Holder's pro rata share of the "Deficiency", as such term is defined below,
if the failure to issue Common Shares results from the lack of a sufficient
number thereof and (2) shall purchase all of such Holder's Preferred Shares (or
such portion requested by such Holder) for such consideration and on such terms
if the failure to issue Common Shares results from any other cause, or is
without cause.
7
<PAGE>
EXHIBIT 10.3
v. Mandatory Purchase Price for Defaults.
(A) The Company acknowledges that any failure, refusal or
inability by the Company to perform the obligations described in the foregoing
paragraphs (i) through (v) will cause the Holders to suffer damages in an amount
that will be difficult to ascertain, including without limitation damages
resulting from the loss of liquidity in the Registrable Securities and the
additional investment risk in holding the Registrable Securities. Accordingly,
the parties agree, after consulting with counsel, that it is appropriate to
include in this Agreement the foregoing provisions for Monthly Delay Payments
and mandatory redemptions in order to compensate the Holders for such damages.
The parties acknowledge and agree that the Monthly Delay Payments and mandatory
redemptions set forth above represent the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such payments and
mandatory redemptions are reasonable and will not constitute a penalty.
(B) In the event that the Company fails to pay any Monthly
Delay Payment within 5 business days of demand therefor, each Holder shall have
the right to sell to the Company any or all of its Preferred Shares at the
Mandatory Repurchase Price on the terms set forth in Section 2(b)(i)(B) above.
vi. Cumulative Remedies. The Monthly Delay Payments and
mandatory purchases provided for above are in addition to and not in lieu or
limitation of any other rights the Holders may have at law, in equity or under
the terms of the Certificate, the Purchase Agreement, and this Agreement,
including without limitation the right to monetary contract damages and specific
performance. Each Holder shall be entitled to specific performance of any and
all obligations of the Company in connection with the registration rights of the
Holders hereunder.
vii. Remedies for Registrable Securities. In any case in which a
Holder of Preferred Shares has the right to cause the purchase of its Preferred
Shares under this Section 2(b), it shall also have the right to cause the
purchase of the Registrable Securities that it owns as follows: such shares
shall be purchased at a price ("Common Purchase Price") equal to the Mandatory
Repurchase Price of the Preferred Shares which were converted into Common
Shares.
In the case in which a Holder of Preferred Shares would
have the right to receive Monthly Delay Payments with respect to
Preferred Shares under Section 2(b), it shall also have the
right to receive payments with respect to Registrable Securities
owned by it in an amount at the rate of the Monthly Delay
Payments that would have applied to the Preferred Shares
converted into Common Shares had such Preferred Shares not been
converted.
8
<PAGE>
EXHIBIT 10.3
(c) If the Holder(s) intend to distribute the Registrable Securities
by means of an underwriting, the Holder(s) shall so advise the Company. Any such
underwriting may only be administered by nationally or regionally recognized
investment bankers reasonably satisfactory to the Company.
(d) The Company shall enter into such customary agreements for
secondary offerings (including a customary underwriting agreement with the
underwriter or underwriters, if any) and take all such other reasonable actions
reasonably requested by the Holders in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the Registrable Securities are to be sold in an underwritten offering:
i. make such representations and warranties to the Holders and
the underwriter or underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in secondary offerings;
ii. cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of independent
counsel to the Company, on and dated as of the effective day (or in the case of
an underwritten offering, dated the date of delivery of any Registrable
Securities sold pursuant thereto) of the Registration Statement, and within
ninety (90) days following the end of each fiscal year thereafter, which counsel
and opinions (in form, scope and substance) shall be reasonably satisfactory to
the Holders and the underwriter(s), if any, and their counsel and covering,
without limitation, such matters as the due authorization and issuance of the
securities being registered and compliance with securities laws by the Company
in connection with the authorization, issuance and registration thereof and
other matters that are customarily given to underwriters in underwritten
offerings, addressed to the Holders and each underwriter, if any;
iii. cause to be delivered, immediately prior to the
effectiveness of the Registration Statement (and, in the case of an underwritten
offering, at the time of delivery of any Registrable Securities sold pursuant
thereto), and at the beginning of each fiscal year following a year during which
the Company's independent certified public accountants shall have reviewed any
of the Company's books or records, a "comfort" letter from the Company's
independent certified public accountants addressed to the Holders and each
underwriter, if any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the applicable
published rules and regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are customarily covered by
letters of the independent certified public accountants delivered in connection
with secondary offerings; such accountants shall have undertaken in each such
letter to update the same during each such fiscal year in which such books or
records are being reviewed so that each such letter shall remain
9
<PAGE>
EXHIBIT 10.3
current, correct and complete throughout such fiscal year; and each such letter
and update thereof, if any, shall be reasonably satisfactory to the Holders;
iv. if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and from the
underwriters and procedures for secondary underwritten offerings; and
v. deliver such documents and certificates as may be reasonably
requested by the Holders of the Registrable Securities being sold or the
managing underwriter or underwriters, if any, to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement, if any.
(e) The Company shall make available for inspection by the Holders,
representative(s) of all the Holders together, any underwriter participating in
any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for purposes of the Holders' due diligence examination of the
Company and review of any Registration Statement, all SEC Documents (as defined
in the Purchase Agreement) filed subsequent to the Closing, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with such
Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, the Company may suspend the use
of any prospectus used in connection with the Registration Statement only in the
event, and for such period of time as, such a suspension is required by the
rules and regulations of the Commission. The Company will use its best efforts
to cause such suspension to terminate at the earliest possible date.
(g) The Company shall file a Registration Statement with respect to
any newly authorized and/or reserved Registrable Securities consisting of Common
Shares described in clause (i) of the definition of Registrable Securities
within five (5) business days of any stockholders meeting authorizing same and
shall use its best efforts to cause such Registration Statement to become
effective within sixty (60) days of such stockholders meeting. If the Holders
become entitled, pursuant to an event described in clause (ii) and (iii) of the
definition of Registrable Securities, to receive any securities in respect of
Registrable Securities that were already included in a Registration Statement,
subsequent to the date such Registration Statement is declared effective, and
the Company is unable under the securities laws to add such securities to the
then effective Registration Statement, the Company shall promptly file, in
accordance with the procedures set forth herein, an additional Registration
Statement with respect to such newly Registrable Securities. The Company shall
use its best efforts to (i) cause any such additional Registration Statement,
when filed, to become effective under the Securities
10
<PAGE>
EXHIBIT 10.3
Act, and (ii) keep such additional Registration Statement effective during the
period described in Section 5 below and cause such Registration Statement to
become effective within 30 days of that date that the need to file the
Registration Statement arose. All of the registration rights and remedies under
this Agreement shall apply to the registration of such newly reserved shares and
such new Registrable Securities, including without limitation the provisions
providing for default payments and mandatory redemptions contained herein.
3. Expenses of Registration. All Registration Expenses in connection with
any registration, qualification or compliance with registration pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses of a Holder
shall be borne by such Holder.
4. Registration on Form S-3. The Company shall use its best efforts to
remain qualified for registration on Form S-3 or any comparable or successor
form or forms, or in the event that the Company is ineligible to use such form,
such form as the Company is eligible to use under the Securities Act.
5. Registration Period. In the case of the registration effected by the
Company pursuant to this Agreement, the Company will use its best efforts to
keep such registration effective until all the Holders have completed the sales
or distribution described in the Registration Statement relating thereto or, if
earlier, until such Registrable Securities may be sold by the Holders under Rule
144(k) (provided that the Company's transfer agent has accepted an instruction
from the Company to such effect).
6. Indemnification.
(a) Company Indemnity. The Company will indemnify each Holder, each
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
or any violation by the Company of the Securities Act or any state securities
law or in either case, any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
Holder, each
11
<PAGE>
EXHIBIT 10.3
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to a Holder to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or the underwriter
(if any) therefor and stated to be specifically for use therein. The indemnity
agreement contained in this Section 6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
(b) Holder Indemnity. Each Holder will, severally and not jointly,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and partners, and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, each other Holder (if any), and each of their officers, directors
and partners, and each person controlling such other Holder(s) against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading in light of the circumstances under which they
were made, and will reimburse the Company and such other Holder(s) and their
directors, officers and partners, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein, and provided that the maximum
amount for which such Holder shall be liable under this indemnity shall not
exceed the net proceeds received by such Holder from the sale of the Registrable
Securities pursuant to the registration statement in question. The indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities if such settlement
is effected without the consent of such Holder (which consent shall not be
unreasonably withheld).
(c) Procedure. Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide
12
<PAGE>
EXHIBIT 10.3
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim in any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6 except to the extent
that the Indemnifying Party is materially and adversely affected by such failure
to provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such non-privileged information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with the defense of such claim and litigation resulting therefrom.
7. Contribution. If the indemnification provided for in Section 6 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an
13
<PAGE>
EXHIBIT 10.3
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraphs shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
section, no Holder or underwriter shall be required to contribute any amount in
excess of the amount by which (i) in the case of any Holder, the net proceeds
received by such Holder from the sale of Registrable Securities pursuant to the
registration statement in question or (ii) in the case of an underwriter, the
total price at which the Registrable Securities purchased by it and distributed
to the public were offered to the public exceeds, in any such case, the amount
of any damages that such Holder or underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. Survival. The indemnity and contribution agreements contained in
Sections 6 and 7 and the representations and warranties of the Company referred
to in Section 2(d)(i) shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or the Purchase Agreement or
any underwriting agreement, (ii) any investigation made by or on behalf of any
Indemnified Party or by or on behalf of the Company, and (iii) the consummation
of the sale or successive resales of the Registrable Securities.
9. Information by Holders. Each Holder shall furnish to the Company such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement. The intended method or methods of
disposition and/or sale (Plan of Distribution) of such securities as so provided
by such Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of such Holder.
10. Replacement Certificates. The certificate(s) representing the Common
Shares or Notes Shares held by any Investor (or then Holder) may be exchanged by
such Investor (or such Holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Common Shares, as reasonably requested by such Investor (or such Holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
11. Transfer or Assignment. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investors by
the Company under this Agreement to cause the Company to register Registrable
Securities may be transferred or
14
<PAGE>
EXHIBIT 10.3
assigned (in whole or in part) to a transferee or assignee of Preferred Shares
or Registrable Securities, and all other rights granted to the Investors by the
Company hereunder may be transferred or assigned to any transferee or assignee
of any Preferred Shares, or Registrable Securities; provided in each case that
the Company must be given written notice by the such Investor at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned; and
provided further that the transferee or assignee of such rights agrees in
writing to be bound by the registration provisions of this Agreement.
12. Miscellaneous.
(a) Remedies. The Company and the Investor acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) Jurisdiction. Each of the Company and the Investor (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court, the New York State courts and other courts of the United States sitting
in New York County, New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company and the Investor consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
(c) Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing by facsimile, mail or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
15
<PAGE>
EXHIBIT 10.3
to the Company:
Secure Computing Corporation
601 Campus Drive South, Suite 7
New Brighton, MN 55112
Telephone: (651) 628-6221
Facsimile: (651) 628-2714
Attention: Ms. Mary Budge and
Secure Computing Corporation
One Almaden Boulevard
Suite 400
San Jose, California 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Michael Anderegg
with copies to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road
Suite 100
Menlo Park, California 94025
Telephone: (650) 234-4200
Facsimile: (650) 234-4299
Attention: Kyle Guse, Esq.
to the Investor:
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: (212) 586-2999
Facsimile: (212) 586-9467
Attention: Mr. Mark Brodsky and Mr. Brett Cohen
16
<PAGE>
EXHIBIT 10.3
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz, Esq.
Any party hereto may from time to time change its address for notices by giving
at least five days' written notice of such changed address to the other parties
hereto.
(d) Indemnity. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
(e) Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. The representations and warranties and the agreements and
covenants of the Company and each Investor contained herein shall survive the
Closing.
(f) Execution in Counterpart. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
(g) Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company agrees
to deliver a copy of any public announcement regarding the matters covered by
this Agreement or any agreement or document executed herewith to the Investor
and any public announcement including the name of the Investor to the Investor,
prior to the publication of such announcements.
(h) Entire Agreement; Amendment. This Agreement, together with the
Purchase Agreement, the Certificate and the agreements and documents
contemplated hereby and thereby, contains the entire understanding and agreement
of the parties, and may not be amended, modified or terminated except by a
written agreement signed by the Company plus the Holders of 75% of the Preferred
Shares issued under the Purchase Agreement to that date; provided that for the
purposes of this Section 12(h)) the Holders of Common Shares still entitled to
registration rights under this Agreement will be
17
<PAGE>
EXHIBIT 10.3
deemed to still be Holders of that number of Preferred Shares which were
converted into such number of Common Shares issued upon conversion which are
still held by them.
(i) Governing Law. This Agreement and the validity and performance
of the terms hereof shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts executed and to be
performed entirely within such state, except to the extent that the law of the
State of Delaware regulates the Company's issuance of securities.
(j) [INTENTIONALLY OMITTED]
(k) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.
(l) Titles. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(m) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
[SIGNATURE PAGE FOLLOWS]
18
<PAGE>
EXHIBIT 10.3
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURE COMPUTING CORPORATION
By: /s/ John McNulty
-------------------------------------
Name: John McNulty
Title: Chief Executive Officer
WESTGATE INTERNATIONAL, LP
By: Martley International, Inc.
Attorney-in-Fact
By: /s/ Elliot Greenberg
-------------------------------------
Name: Elliot Greenberg
Title: Vice President
19
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as of January
26, 2000, between Secure Computing Corporation, a Delaware corporation with
offices at One Almaden Boulevard, Suite 400, San Jose, California 95113 (the
"Company") and Westgate International, LP, a Cayman Islands limited partnership
with an office c/o Stonington Management Corporation, 712 Fifth Avenue, New
York, New York 10019 (the "Investor").
W I T N E S S E T H:
Whereas, pursuant to that certain Put and Call Agreement, dated on or
about the date hereof, by and between the Company and the Investor (the "Put and
Call Agreement"), the Company may, pursuant to the Company's put rights or the
Investor's call rights thereunder, sell to the Investor 17,500 shares of the
Company's Series E 4% Cumulative Convertible Preferred Stock (the "Preferred
Shares") in two separate Tranches (each a "Tranche"); and
Whereas, the Put and Call Agreement contemplates that the Preferred Shares
will be convertible into shares (the "Common Shares") of common stock, par value
$0.01, of the Company ("Common Stock") pursuant to the terms and conditions set
forth in the Certificate of Designations for the Preferred Shares (the
"Certificate"); and
Now, Therefore, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Put and Call Agreement and
this Agreement, the Company and the Investors agree as follows:
1. Certain Definitions. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Put and Call Agreement or
the Certificate. As used in this Agreement, the following terms shall have the
following respective meanings:
"Closing" shall have the meaning ascribed to such terms in the Put
and Call Agreement.
"Commission" or "SEC" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Holder" and "Holders" shall include the Investor and any transferee
or transferees of the Preferred Shares, Common Shares or Registrable Securities
which have not been sold to the public to whom the registration rights conferred
by this Agreement have been transferred in compliance with this Agreement and
the Put and Call Agreement.
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EXHIBIT 10.4
The terms "register", "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean: (i) the Common Shares or other
securities issued or issuable to each Holder or its permitted transferee or
designee upon conversion of the Preferred Shares; (ii) securities issued or
issuable upon any stock split, stock dividend, recapitalization or similar event
with respect to such Common Shares; and (iii) any other security issued as a
dividend or other distribution with respect to, in exchange for or in
replacement of the securities referred to in the preceding clauses.
"Registration Expenses" shall mean all expenses to be incurred by
the Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and disbursements of counsel to Holders
(using a single counsel selected by a majority in interest of the Holders) for a
"due diligence" examination of the Company and review of the Registration
Statement and related documents, and the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company and further excluding any fees and disbursements for counsel in
connection with any due diligence review incurred in connection with the Common
Stock Investment Agreement, dated as of October 4, 1999, by and between
Manchester Securities Corp. and the Company).
"Registration Statement" shall have the meaning set forth in Section
2(a) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to
the Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
2. Registration Requirements. The Company shall use its best efforts to
effect the registration of the Registrable Securities (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act) as would permit or facilitate the
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EXHIBIT 10.4
sale or distribution of all the Registrable Securities in the manner (including
manner of sale) and in all states reasonably requested by the Holder. Such best
efforts by the Company shall include, without limitation, the following:
(a) The Company shall, as expeditiously as possible after the
Closing of the purchase of each Tranche:
i. But in any event within 30 days of the date of each Closing
of the purchase of a Tranche of Preferred Shares under the Put and Call
Agreement (a "Tranche Closing Date"), prepare and file a registration statement
with the Commission pursuant to Rule 415 under the Securities Act on Form S-3
under the Securities Act (or in the event that the Company is ineligible to use
such form, such other form as the Company is eligible to use under the
Securities Act) covering resales by the Holders of the Registrable Securities
included in such Tranche (a "Registration Statement"), which Registration
Statement, to the extent allowable under the Securities Act and the rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of the Preferred Shares in such
Tranche. All references herein to "Registration Statement" shall refer to the
Registration Statements covering the Registrable Securities in each Tranche. The
number of shares of Common Stock initially included in a Registration Statement
shall be no less than the sum of two times the number of Common Shares that are
then issuable upon conversion of the Preferred Shares included in the Tranche.
Nothing in the preceding sentence will limit the Company's obligations to
reserve shares of Common Stock pursuant to Section 3.7 of the Put and Call
Agreement. Thereafter the Company shall use its best efforts to cause such
Registration Statement and other filings to be declared effective as soon as
possible, and in any event prior to 60 days following the Tranche Closing Date.
Without limiting the foregoing, the Company will promptly respond to all SEC
comments, inquiries and requests, and shall request acceleration of
effectiveness at the earliest possible date. The Company shall provide the
Holders reasonable opportunity to review any such Registration Statement or
amendment or supplement thereto prior to filing.
ii. Prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such Registration Statement and notify the Holders of the filing and
effectiveness of such Registration Statement and any amendments or supplements.
iii. Furnish to each Holder such numbers of copies of a current
prospectus conforming with the requirements of the Act, copies of the
Registration Statement, any amendment or supplement thereto and any documents
incorporated by reference therein and such other documents as such Holder may
reasonably require in order to facilitate the disposition of Registrable
Securities owned by such Holder.
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EXHIBIT 10.4
iv. Register and qualify the securities covered by such
Registration Statement under the securities or "Blue Sky" laws of all domestic
jurisdictions; provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
v. Notify each Holder immediately of the happening of any event
(but not the substance or details of any such events unless specifically
requested by a Holder) as a result of which the prospectus (including any
supplements thereto or thereof) included in such Registration Statement, as then
in effect, includes an untrue statement of material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, and use its
best efforts to promptly update and/or correct such prospectus.
vi. Notify each Holder immediately of the issuance by the
Commission or any state securities commission or agency of any stop order
suspending the effectiveness of the Registration Statement or the threat or
initiation of any proceedings for that purpose. The Company shall use its best
efforts to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible time.
vii. Permit counsel to the Holders to review the Registration
Statement and all amendments and supplements thereto within a reasonable period
of time (but not less than 2 full Trading Days (as defined in the Certificate))
prior to each filing, and shall not file any document in a form to which such
counsel reasonably objects and will not request acceleration of the Registration
Statement without prior notice to such counsel.
viii. List the Registrable Securities covered by such
Registration Statement with all securities exchange(s) and/or markets on which
the Common Stock is then listed and prepare and file any required filings with
the Nasdaq National Market or any exchange or market where the Common Shares are
traded.
ix. Take all steps necessary to enable Holders to avail
themselves of the prospectus delivery mechanism set forth in Rule 153 (or
successor thereto) under the Act.
(b) Set forth below in this Section 2(b) are (I) events that may
arise that the Investors consider will interfere with the full enjoyment of
their rights under this Agreement, the Put and Call Agreement and the
Certificate (the "Interfering Events"), and (II) certain remedies applicable in
each of these events.
Paragraphs (i) through (iv) of this Section 2(b) describe the
Interfering Events, provide a remedy to the Investors if an Interfering Event
occurs and
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EXHIBIT 10.4
provide that the Investors may require that the Company repurchase outstanding
Preferred Shares at a specified price if certain Interfering Events are not
timely cured.
Paragraph (v) provides, inter alia, that if default adjustments
required as the remedy in the case of certain of the Interfering Events are not
provided when due, the Company may be required by the Investors to redeem
outstanding Preferred Shares at a specified price.
Paragraph (vi) provides, inter alia, that the Investors have the
right to specific performance.
The preceding paragraphs in this Section 2(b) are meant to serve
only as an introduction to this Section 2(b), are for convenience only, and are
not to be considered in applying, construing or interpreting this Section 2(b).
i. Delay in Effectiveness of Registration Statement.
(A) In the event that such Registration Statement has not
been declared effective within 60 days from the Tranche Closing Date, then the
Company shall pay each Holder a Monthly Delay Payment (as defined below) for
each 30 day period (or portion thereof) that effectiveness of the Registration
Statement is delayed. In addition to the foregoing, if the Registration
Statement has not been declared effective within 120 days after the Tranche
Closing Date, then each Holder shall have the right to sell, at any time after
the 120th day after the Tranche Closing Date, any or all of its Preferred Shares
to the Company for consideration (the "Mandatory Repurchase Price") equal to the
greater of (x) 120% of the Liquidation Preference of all such Preferred Shares
being sold to the Company or (y) the Liquidation Preference for the Preferred
Shares being sold to the Company divided by the then applicable Conversion Price
multiplied by the greater of the last closing price of the Common Stock on (i)
the date a Holder exercises its option pursuant to this Section 2(b) to require
repurchase of Preferred Shares or (ii) the date on which the event triggering
Holder's remedies under this Section 2(b) first occurred, in each case payable
in cash.
(B) As used in this Agreement, a "Monthly Delay Payment"
shall be a cash payment equal to 1% of the Liquidation Preference of the
Preferred Shares held by a Holder for the first 30 day period (or portion
thereof) that the specified condition in this Section 2(b) has not been
fulfilled or the specified deficiency has not been remedied and 2% of such
Liquidation Preference thereafter for each subsequent 30 day period (or portion
thereof) that the specified condition in this Section 2(b) has not been
fulfilled or the specified deficiency has not been remedied. Payment of the
Monthly Delay Payments and Mandatory Repurchase Price shall be due and payable
from the Company to such Holder within 5 business days of demand therefor.
Without limiting the foregoing, if cash payment of the Mandatory Repurchase
Price is not made within such 5 business day period, the Holder may revoke and
withdraw its election to cause the
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<PAGE>
EXHIBIT 10.4
Company to make such mandatory purchase at any time prior to its receipt of such
cash. At the option of the Holder, Monthly Delay Payments may be added to the
Liquidation Preference of the Preferred Shares held by it.
(C) Notwithstanding the foregoing, there shall be excluded
from the calculation of the number of days that the Registration Statement has
not been declared effective the delays which are solely attributable to delays
in the Investors providing information required for the Registration Statement.
ii. No Listing; Premium Price Redemption for Delisting of Class
of Shares.
(A) In the event that the Company fails, refuses or for any
other reason is unable to cause the Registrable Securities covered by the
Registration Statement to be listed with Nasdaq National Market or one of the
other Approved Markets (as defined in the Put and Call Agreement) at all times
during the period ("Listing Period") from the 60th day following the Tranche
Closing Date until such time as all of the Preferred Shares shall have been
subject to mandatory conversion pursuant to the terms of the Certificate, then
the Company shall provide to each Holder a Monthly Delay Payment, for each 30
day period or portion thereof during which such listing is not in effect. In
addition to the foregoing, following the 30th day that such listing is not in
effect, each Holder shall have the right to sell to the Company any or all of
its Preferred Shares at the Mandatory Repurchase Price. The provisions of
Section 2(b)(i)(B) shall apply to this Section 2(b)(ii)(A).
(B) In the event that shares of Common Stock of the Company
are not listed on any of the Approved Markets at all times following the Tranche
Closing Date, or are otherwise suspended from trading and remain unlisted or
suspended for 5 consecutive days, or if the Registrable Securities are not
listed for 5 consecutive days following the Closing, then at the option of each
Holder and to the extent such Holder so elects, each Holder shall have the right
to sell to the Company the Preferred Shares held by such Holder, in whole or in
part, for the Mandatory Repurchase Price on the terms set forth in Section
2(b)(i)(B) above.
iii. Blackout Periods. In the event any Holder's ability to sell
Registrable Securities under the Registration Statement is suspended for more
than (i) five (5) consecutive days or (ii) twenty (20) days in any calendar year
("Suspension Grace Period"), including without limitation by reason of any
suspension or stop order with respect to the Registration Statement or the fact
that an event has occurred as a result of which the prospectus (including any
supplements thereto) included in such Registration Statement then in effect
includes an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing (a "Blackout"), then the
Company shall provide to each Holder a Monthly Delay Payment
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<PAGE>
EXHIBIT 10.4
for each 30 day period or portion thereof from and after the expiration of the
Suspension Grace Period, on the terms set forth in Section 2(b)(i)(B) above. In
addition, at any time following the expiration of the Suspension Grace Period if
the Blackout continues for more than five (5) additional consecutive days, a
Holder shall have the right to sell to the Company its Preferred Shares in whole
or in part for the Mandatory Repurchase Price on the terms set forth in Section
2(b)(i)(B) above.
iv. Redemption for Conversion Deficiency. In the event that the
Company does not have a sufficient number of Common Shares available to satisfy
the Company's obligations to any Holder upon receipt of a Conversion Notice (as
defined in the Certificate) or is otherwise unable or unwilling for any reason
to issue such Common Shares (other than failure of the Holder to comply with the
conversion notice and delivery requirements of Section 5 of the Certificate)
(each, a "Conversion Deficiency") in accordance with the terms of the
Certificate for any reason after receipt of a Conversion Notice from any Holder,
then:
(A) The Company shall provide to each Holder a Monthly Delay
Payment for each 30 day period or portion thereof following the Conversion
Deficiency, on the terms set forth in Section 2(b)(i)(B) above. This provision
shall apply regardless of whether the Preferred Shares have been authorized,
issued or delivered to the Holder.
(B) At any time five days after the commencement of the
running of the first 30-day period described above in clause (A) of this
paragraph (iv), at the request of any Holder, the Company promptly shall
purchase from such Holder, for the Mandatory Repurchase Price and on the terms
set forth in Section 2(b)(i)(B) above, the outstanding Preferred Shares equal to
such Holder's pro rata share of the "Deficiency", as such term is defined below,
if the failure to issue Common Shares results from the lack of a sufficient
number thereof and (2) shall purchase all of such Holder's Preferred Shares (or
such portion requested by such Holder) for such consideration and on such terms
if the failure to issue Common Shares results from any other cause, or is
without cause.
(C) In the event that the Holder shall have elected to send
a Conversion Notice prior to the issuance of the Preferred Shares being
converted, and at the time the remedy set forth in paragraph (B) above shall
become applicable such Preferred Shares shall have remained unissued, then at
the request of the Holder the Company shall pay to the Holder the difference
between the Mandatory Repurchase Price on the terms set forth in Section
2(b)(i)(B) above determined pursuant to paragraph (B) above and the product of
the number of Preferred Shares multiplied by $1,000. The provision shall apply
regardless of whether the failure to issue Common Shares is due to a failure to
issue such shares upon conversion of Preferred Shares or due to a failure to
issue the Preferred Shares being converted.
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<PAGE>
EXHIBIT 10.4
v. Mandatory Purchase Price for Defaults.
(A) The Company acknowledges that any failure, refusal or
inability by the Company to perform the obligations described in the foregoing
paragraphs (i) through (v) will cause the Holders to suffer damages in an amount
that will be difficult to ascertain, including without limitation damages
resulting from the loss of liquidity in the Registrable Securities and the
additional investment risk in holding the Registrable Securities. Accordingly,
the parties agree, after consulting with counsel, that it is appropriate to
include in this Agreement the foregoing provisions for Monthly Delay Payments
and mandatory redemptions in order to compensate the Holders for such damages.
The parties acknowledge and agree that the Monthly Delay Payments and mandatory
redemptions set forth above represent the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such payments and
mandatory redemptions are reasonable and will not constitute a penalty.
(B) In the event that the Company fails to pay any Monthly
Delay Payment within 5 business days of demand therefor, each Holder shall have
the right to sell to the Company any or all of its Preferred Shares at the
Mandatory Repurchase Price on the terms set forth in Section 2(b)(i)(B) above.
vi. Cumulative Remedies. The Monthly Delay Payments and
mandatory purchases provided for above are in addition to and not in lieu or
limitation of any other rights the Holders may have at law, in equity or under
the terms of the Certificate, the Put and Call Agreement, and this Agreement,
including without limitation the right to monetary contract damages and specific
performance. Each Holder shall be entitled to specific performance of any and
all obligations of the Company in connection with the registration rights of the
Holders hereunder.
vii. Remedies for Registrable Securities. In any case where a
holder of Registrable Securities would be entitled to Monthly Delay Payments on
Preferred Shares, but for the conversion of such Preferred Shares into
Registrable Securities, the Monthly Delay Payments shall accrue on the original
Liquidation Preference of the Preferred Shares from which the Registrable
Securities where converted. In any case in which a Holder of Preferred Shares
has the right to cause the purchase of its Preferred Shares under this Section
2(b) (or would have such right but for the conversion of Preferred Shares), it
shall have the right to cause the purchase of the Registrable Securities that it
owns as follows: such shares shall be purchased at a price ("Common Purchase
Price") equal to the Mandatory Repurchase Price of the Preferred Shares which
were converted into Common Shares.
In the case in which a Holder of Preferred Shares would have the
right to receive Monthly Delay Payments with respect to Preferred Shares under
Section 2(b), it shall also have the right to receive payments with respect to
Registrable Securities owned by it in an amount at the rate of the Monthly Delay
8
<PAGE>
EXHIBIT 10.4
Payments that would have applied to the Preferred Shares converted into Common
Shares had such Preferred Shares not been converted.
(c) If the Holder(s) intend to distribute the Registrable Securities
by means of an underwriting, the Holder(s) shall so advise the Company. Any such
underwriting may only be administered by nationally or regionally recognized
investment bankers reasonably satisfactory to the Company.
(d) The Company shall enter into such customary agreements for
secondary offerings (including a customary underwriting agreement with the
underwriter or underwriters, if any) and take all such other reasonable actions
reasonably requested by the Holders in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities and whether or not
an underwriting agreement is entered into and whether or not the Registrable
Securities are to be sold in an underwritten offering:
i. make such representations and warranties to the Holders and
the underwriter or underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in secondary offerings;
ii. cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of independent
counsel to the Company, on and dated as of the effective day of a Registration
Statement, and within ninety (90) days following the end of each fiscal year
thereafter, which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Holders and the underwriter(s), if any, and their
counsel and covering, without limitation, such matters as the due authorization
and issuance of the securities being registered and compliance with securities
laws by the Company in connection with the authorization, issuance and
registration thereof and other matters that are customarily given to
underwriters in underwritten offerings, addressed to the Holders and each
underwriter, if any;
iii. cause to be delivered, immediately prior to the
effectiveness of a Registration Statement and at the beginning of each fiscal
year following a year during which the Company's independent certified public
accountants shall have reviewed any of the Company's books or records, a
"comfort" letter from the Company's independent certified public accountants
addressed to the Holders and each underwriter, if any, stating that such
accountants are independent public accountants within the meaning of the
Securities Act and the applicable published rules and regulations thereunder,
and otherwise in customary form and covering such financial and accounting
matters as are customarily covered by letters of the independent certified
public accountants delivered in connection with secondary offerings; such
accountants shall have undertaken in each such letter to update the same during
each such fiscal year in which such books or records are being reviewed so that
each such letter shall remain
9
<PAGE>
EXHIBIT 10.4
current, correct and complete throughout such fiscal year; and each such letter
and update thereof, if any, shall be reasonably satisfactory to the Holders;
iv. if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and from the
underwriters and procedures for secondary underwritten offerings; and
v. deliver such documents and certificates as may be reasonably
requested by the Holders of the Registrable Securities being sold or the
managing underwriter or underwriters, if any, to evidence compliance with clause
(i) above and with any customary conditions contained in the underwriting
agreement, if any.
(e) The Company shall make available for inspection by the Holders,
representative(s) of all the Holders together, any underwriter participating in
any disposition pursuant to a Registration Statement, and any attorney or
accountant retained by any Holder or underwriter, all financial and other
records customary for purposes of the Holders' due diligence examination of the
Company and review of any Registration Statement, all SEC Documents (as defined
in the Put and Call Agreement) filed subsequent to the Closing, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or accountant in connection
with such Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, the Company may suspend the use
of any prospectus used in connection with a Registration Statement only in the
event, and for such period of time as, such a suspension is required by the
rules and regulations of the Commission. The Company will use its best efforts
to cause such suspension to terminate at the earliest possible date.
(g) The Company shall file a Registration Statement with respect to
any newly authorized and/or reserved Registrable Securities consisting of Common
Shares described in clause (i) of the definition of Registrable Securities
within five (5) business days of any stockholders meeting authorizing same and
shall use its best efforts to cause such Registration Statement to become
effective within sixty (60) days of such stockholders meeting. If the Holders
become entitled, pursuant to an event described in clause (ii) and (iii) of the
definition of Registrable Securities, to receive any securities in respect of
Registrable Securities that were already included in a Registration Statement,
subsequent to the date such Registration Statement is declared effective, and
the Company is unable under the securities laws to add such securities to the
then effective Registration Statement, the Company shall promptly file, in
accordance with the procedures set forth herein, an additional Registration
Statement with respect to such newly Registrable Securities. The Company shall
use its best efforts to (i) cause any such additional Registration Statement,
when filed, to become effective under the Securities
10
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EXHIBIT 10.4
Act, and (ii) keep such additional Registration Statement effective during the
period described in Section 5 below and cause such Registration Statement to
become effective within 30 days of that date that the need to file the
Registration Statement arose. All of the registration rights and remedies under
this Agreement shall apply to the registration of such newly reserved shares and
such new Registrable Securities, including without limitation the provisions
providing for default payments and mandatory redemptions contained herein.
3. Expenses of Registration. All Registration Expenses in connection with
any registration, qualification or compliance with registration pursuant to this
Agreement shall be borne by the Company, and all Selling Expenses of a Holder
shall be borne by such Holder.
4. Registration on Form S-3. The Company shall use its best efforts to
remain qualified for registration on Form S-3 or any comparable or successor
form or forms, or in the event that the Company is ineligible to use such form,
such form as the Company is eligible to use under the Securities Act.
5. Registration Period. In the case of the registration effected by the
Company pursuant to this Agreement, the Company will use its best efforts to
keep such registration effective until all the Holders have completed the sales
or distribution described in the Registration Statement relating thereto or, if
earlier, until such Registrable Securities may be sold by the Holders under Rule
144(k) (provided that the Company's transfer agent has accepted an instruction
from the Company to such effect).
6. Indemnification.
(a) Company Indemnity. The Company will indemnify each Holder, each
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, within the meaning of Section 15 of the Securities Act
and the rules and regulations thereunder with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls, within the meaning of
Section 15 of the Securities Act and the rules and regulations thereunder, any
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or other document (including any related registration statement,
notification or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
or any violation by the Company of the Securities Act or any state securities
law or in either case, any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
Holder, each
11
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EXHIBIT 10.4
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to a Holder to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Holder or the underwriter
(if any) therefor and stated to be specifically for use therein. The indemnity
agreement contained in this Section 6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent will
not be unreasonably withheld).
(b) Holder Indemnity. Each Holder will, severally and not jointly,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and partners, and each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, each other Holder (if any), and each of their officers, directors
and partners, and each person controlling such other Holder(s) against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading in light of the circumstances under which they
were made, and will reimburse the Company and such other Holder(s) and their
directors, officers and partners, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein, and provided that the maximum
amount for which such Holder shall be liable under this indemnity shall not
exceed the net proceeds received by such Holder from the sale of the Registrable
Securities pursuant to the registration statement in question. The indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities if such settlement
is effected without the consent of such Holder (which consent shall not be
unreasonably withheld).
(c) Procedure. Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide
12
<PAGE>
EXHIBIT 10.4
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim in any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6 except to the extent
that the Indemnifying Party is materially and adversely affected by such failure
to provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such non-privileged information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with the defense of such claim and litigation resulting therefrom.
7. Contribution. If the indemnification provided for in Section 6 herein
is unavailable to the Indemnified Parties in respect of any losses, claims,
damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Holders or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an
13
<PAGE>
EXHIBIT 10.4
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraphs shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
section, no Holder or underwriter shall be required to contribute any amount in
excess of the amount by which (i) in the case of any Holder, the net proceeds
received by such Holder from the sale of Registrable Securities pursuant to the
registration statement in question or (ii) in the case of an underwriter, the
total price at which the Registrable Securities purchased by it and distributed
to the public were offered to the public exceeds, in any such case, the amount
of any damages that such Holder or underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. Survival. The indemnity and contribution agreements contained in
Sections 6 and 7 and the representations and warranties of the Company referred
to in Section 2(d)(i) shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or the Put and Call
Agreement or any underwriting agreement, (ii) any investigation made by or on
behalf of any Indemnified Party or by or on behalf of the Company, and (iii) the
consummation of the sale or successive resales of the Registrable Securities.
9. Information by Holders. Each Holder shall furnish to the Company such
information regarding such Holder and the distribution and/or sale proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement. The intended method or methods of
disposition and/or sale (Plan of Distribution) of such securities as so provided
by such Investor shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
written consent of such Holder.
10. Replacement Certificates. The certificate(s) representing the Common
Shares or Notes Shares held by any Investor (or then Holder) may be exchanged by
such Investor (or such Holder) at any time and from time to time for
certificates with different denominations representing an equal aggregate number
of Common Shares, as reasonably requested by such Investor (or such Holder) upon
surrendering the same. No service charge will be made for such registration or
transfer or exchange.
11. Transfer or Assignment. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The rights granted to the Investors by
the Company under this Agreement to cause the Company to register Registrable
Securities may be transferred or
14
<PAGE>
EXHIBIT 10.4
assigned (in whole or in part) to a transferee or assignee of Preferred Shares
or Registrable Securities, and all other rights granted to the Investors by the
Company hereunder may be transferred or assigned to any transferee or assignee
of any Preferred Shares, or Registrable Securities; provided in each case that
the Company must be given written notice by the such Investor at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned; and
provided further that the transferee or assignee of such rights agrees in
writing to be bound by the registration provisions of this Agreement.
12. Miscellaneous.
(a) Remedies. The Company and the Investor acknowledge and agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which any of
them may be entitled by law or equity.
(b) Jurisdiction. Each of the Company and the Investor (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States District
Court, the New York State courts and other courts of the United States sitting
in New York County, New York for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company and the Investor consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
(c) Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing by facsimile, mail or personal
delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
15
<PAGE>
EXHIBIT 10.4
to the Company:
Secure Computing Corporation
601 Campus Drive South, Suite 7
New Brighton, Minnesota 55112
Telephone: (651) 628-6221
Facsimile: (651) 628-2714
Attention: Ms. Mary Budge and
Secure Computing Corporation
One Almaden Boulevard, Suite 400
San Jose, California 95113
Telephone: (408) 918-6180
Facsimile: (408) 918-6205
Attention: Mr. Michael Anderegg
with copies to:
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, California 94025
Telephone: (650) 234-4200
Facsimile: (650) 234-4299
Attention: Kyle Guse, Esq.
to the Investor:
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: (212) 586-2999
Facsimile: (212) 586-9467
Attention: Mr. Mark Brodsky and Mr. Brett Cohen
with copies to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Telephone: (212) 986-6000
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz, Esq.
16
<PAGE>
EXHIBIT 10.4
Any party hereto may from time to time change its address for notices by giving
at least five days' written notice of such changed address to the other parties
hereto.
(d) Indemnity. Each party shall indemnify each other party against
any loss, cost or damages (including reasonable attorney's fees) incurred as a
result of such parties' breach of any representation, warranty, covenant or
agreement in this Agreement.
(e) Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement of this Agreement shall be deemed to be
a continuing waiver in the future or a waiver of any other provision, condition
or requirement hereof, nor shall any delay or omission of any party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter. The representations and warranties and the agreements and
covenants of the Company and each Investor contained herein shall survive the
Closing.
(f) Execution in Counterpart. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, it being understood that all parties need not sign the same
counterpart.
(g) Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the name of the Investor without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. The Company agrees
to deliver a copy of any public announcement regarding the matters covered by
this Agreement or any agreement or document executed herewith to the Investor
and any public announcement including the name of the Investor to the Investor,
prior to the publication of such announcements.
(h) Entire Agreement; Amendment. This Agreement, together with the
Put and Call Agreement, the Certificate and the agreements and documents
contemplated hereby and thereby, contains the entire understanding and agreement
of the parties, and may not be amended, modified or terminated except by a
written agreement signed by the Company plus the Holders of 75% of the Preferred
Shares issued under the Put and Call Agreement to that date; provided that for
the purposes of this Section 12(h)) the Holders of Common Shares still entitled
to registration rights under this Agreement will be deemed to still be Holders
of that number of Preferred Shares which were converted into such number of
Common Shares issued upon conversion which are still held by them.
(i) Governing Law. This Agreement and the validity and performance
of the terms hereof shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts executed and to be
performed entirely within such state, except to the extent that the law of the
State of Delaware regulates the Company's issuance of securities.
17
<PAGE>
EXHIBIT 10.4
(j) [INTENTIONALLY OMITTED]
(k) Jury Trial. EACH PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY
JURY.
(l) Titles. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(m) No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rule of strict construction will be applied against any party.
[SIGNATURE PAGE FOLLOWS]
18
<PAGE>
EXHIBIT 10.4
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURE COMPUTING CORPORATION
By: /s/ Time McGurran
-------------------------------------
Name: Time McGurran
Title: S.V.P. Operations and CFO
WESTGATE INTERNATIONAL, LP
By: Martley International, Inc.
Attorney-in-Fact
By: /s/ Paul Singer
-------------------------------------
Name: Paul Singer
Title: President
19
EXHIBIT 99.1
CONTACTS: Media Investors
Patty Garrison Michael Anderegg, CFA
408-918-6182 408-918-6182
FOR IMMEDIATE RELEASE
SECURE COMPUTING REPORTS FOURTH-QUARTER 1999 OPERATING RESULTS AND OTHER
CORPORATE DEVELOPMENTS
SAN JOSE, CA, JANUARY 27, 2000--Secure Computing Corporation (NASDAQ:
SCUR) announced today a fourth quarter net loss of $7.6 million or $.34 per
share, on revenues of $6.9 million, compared to net income of $1.0 million or
$.05 per share, on revenues of $17.8 million in the same quarter last year. The
net loss was reduced 4% from $7.9 million in the third quarter.
Products and services revenue, the company's primary area of emphasis,
increased 11% sequentially to $5.9 million against $5.3 million in the third
quarter and decreased 62 % from $15.7 million in the year ago quarter. As
expected, advanced technology contract revenue decreased 14% to $1.0 million
from $1.2 million the third quarter, and decreased 53% from $2.1 million in the
year ago quarter.
There was significant sequential improvement in several other financial
statistics in addition to product and services revenue. Gross margins in the
quarter increased 16 percentage points to 56% from 40% in the third quarter, due
to a higher proportion of software only sales. Days sales outstanding declined
by 42 days, or 37% to 71 days and deferred revenue increased by $1 million, or
38%.
"We are encouraged by our strong sequential products and services revenue
growth and the corresponding progress made during the quarter toward our goal of
being the leading provider of safe secure extranets for e-business." said John
McNulty, Chairman and CEO. "We are optimistic about our opportunities as we
continue building the new Secure Computing."
Secure's operating expenses were $11.4 million, up 8% compared with the
previous quarter and down 4% from the same quarter of 1998. As part of Secure's
ongoing strategy to increase its investment in its sales and marketing while
supporting new product launches, costs in those areas were $7.2 million, up 16%
compared to $6.2 million in the fourth quarter of 1998. Research and development
costs of $3.0 million increased 4% sequentially from the third quarter as the
company continues to invest in next generation products. General and
administrative costs of $1.3 million declined 15% from the third quarter, and
were down 23% from the year ago quarter, reflecting a leaner and more
streamlined organization.
* more -
1
<PAGE>
EXHIBIT 99.1
SECURE COMPUTING
PAGE 2
JANUARY 27, 1999
In conjunction with the release of fourth quarter financial results, it
was announced today that a new preferred stock financing in the aggregate amount
of $25 million has been arranged with an institutional investor under common
management with Manchester Securities. This financing will be available in three
installments, the first $7.5 million of which was drawn near the end of the
fourth quarter and has already been converted into common stock. Two additional
installments of $8.75 million each will be drawn at the election of either
party, the first on or before April 1, 2000 and the second on or before November
1, 2000. This is a convertible preferred instrument with a predefined short
conversion window, that for the two future installments is priced at 100% of an
average price during the 12 days preceding the settlement date. This financing
is subject to a number of terms, conditions and limitations. The investor has no
additional call right in this placement nor can the investor maintain a net
short position in the Company's stock. The financing replaces the equity line
entered into with Manchester in October of 1999. "We are very pleased to enter
into this financing which we believe is attractive for the company and meets our
capital needs," said Tim McGurran, Senior Vice President of Operations and Chief
Financial Officer.
The company also announced today that Craig Caudill, Senior Vice President
of Worldwide Sales has elected to resign to pursue other opportunities. " We
thank Craig for his contributions," said John McNulty. "We appreciate very much
the effort and energy he brought to his job and the progress he made. We wish
him well in his future endeavors." Mr. Caudill's responsibilities will be
assumed by Mr. McNulty as the Company strives to achieve improved efficiencies,
a flatter organization and more direct accountability of key functions.
ABOUT SECURE COMPUTING
Headquartered in San Jose, California, Secure Computing Corporation is a global
leader in providing safe, secure extranets for e-business. Secure Computing
solutions provide authentication, authorization, and secure network access.
Secure Computing's worldwide partners and customer base are counted among the
Fortune 50 in financial services, healthcare, telecom, communications,
manufacturing, technology and Internet service providers, as well as some of the
largest agencies of the United States government.
###
FOR MORE INFORMATION, VISIT SECURE COMPUTING CORPORATION AT
www.securecomputing.com, OR BY CALLING: IN EUROPE,
+44-1753-826000; IN ASIA/PACIFIC, +61-2-9844-5440,
IN THE U.S., 800-379-4944, OR 408-918-6100
* MORE -
2
<PAGE>
EXHIBIT 99.1
This press release contains the following forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934, as amended, and is subject to the Safe Harbor
created by those sections: (1) that the Company will continue its pursuit of
being the leading provider of secure extranets for e-business; (2) that the
Company will receive $25 million in additional preferred stock financing and
that such financing will be available through November 1, 2000; and (3) that the
alternative preferred stock financing will be as advantageous to the Company as
the existing relationship with Manchester Securities.
The following are important factors that could cause actual results to differ
materially from those in these forward-looking statement: with regard to
Statement (1) that the Company's pursuit of providing secure extranets might not
be successful, or that if successful, it will not materially enhance the
Company's financial performance; with regard to Statement (2) the terms of the
new Agreement could be altered by the parties to change the amount of the
financing, the term of financing, or otherwise; and with regard to Statement (3)
that other forms of financing might be more beneficial to the Company or might
better match the Company's present requirements, or that such requirements might
change materially in the future, thus making the substitute financing agreed
upon by the Company less beneficial than other alternatives including the
original equity line with Manchester Securities and that the sale of shares
pursuant to the financing may have a dilutive impact on the Company's
shareholders resulting in a reduction in the market price of the Company's
common stock; and other risk factors detailed from time to time in Secure
Computing's periodic reports and registration statements filed with the
Securities and Exchange Commission.
* more -
3
<PAGE>
EXHIBIT 99.1
SECURE COMPUTING CORPORATION
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Products and services revenue $ 5,899 $ 15,672 $ 22,546 $ 51,500
Advanced Technology contract revenue 1,001 2,113 4,567 9,942
------------ ------------ ------------ ------------
Total revenue 6,900 17,785 27,113 61,442
Cost of revenue 3,066 5,468 18,781 20,152
------------ ------------ ------------ ------------
Gross profit 3,834 12,317 8,332 41,290
Operating expenses:
Selling and marketing 7,176 6,166 29,705 23,821
Research and development 2,968 1,851 10,983 7,477
General and administrative 1,285 1,670 7,274 4,965
Stock option expense -- 2,160 4,740 2,160
Restructure Costs -- -- -- 7,800
------------ ------------ ------------ ------------
11,429 11,847 52,702 46,223
------------ ------------ ------------ ------------
Operating income (loss) (7,595) 470 (44,370) (4,933)
Net interest income 1 189 363 474
------------ ------------ ------------ ------------
Income (loss) before income taxes (7,594) 659 (44,007) (4,459)
Income tax (expense)/benefit -- 372 (900) 1,197
------------ ------------ ------------ ------------
Net income/(loss) $ (7,594) $ 1,031 $ (44,907) $ (3,262)
============ ============ ============ ============
Basic earnings/(loss) per share $ (0.34) $ 0.06 $ (2.32) $ (0.20)
============ ============ ============ ============
Weighted average shares outstanding 22,192 16,407 19,323 16,106
============ ============ ============ ============
Diluted earnings/(loss) per share $ (0.34) 0.05 $ (2.32) $ (0.20)
============ ============ ============ ============
Weighted average common shares
and equivalents outstanding 22,192 20,329 19,323 16,106
============ ============ ============ ============
</TABLE>
4
<PAGE>
EXHIBIT 99.1
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
Dec. 31, Dec. 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,678 $ 9,992
Investments 5,212 10,886
Accounts receivable, net 5,417 19,712
Other current assets 3,542 4,722
------------ ------------
Total current assets 17,849 45,312
Property and equipment, net 4,215 3,794
Other assets 3,765 5,242
------------ ------------
Total assets $ 25,829 $ 54,348
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities $ 10,552 $ 11,295
Stockholders' equity
Preferred Stock -- --
Common Stock 230 165
Additional paid-in capital 106,832 89,730
Foreign currency translation (238) (202)
Accumulated deficit (91,547) (46,640)
------------ ------------
Total stockholders' equity 15,277 43,053
------------ ------------
Total liabilities and stockholders' equity $ 25,829 $ 54,348
============ ============
</TABLE>
5
